Transaction Costs, Frequent Trading, and Stock Prices.

53 Pages Posted: 24 Mar 2018 Last revised: 26 Jul 2022

See all articles by Sergey Isaenko

Sergey Isaenko

Concordia University, Quebec - Department of Finance

Date Written: October 1, 2017

Abstract

I consider the effects of quadratic transaction costs on stock prices. It is optimal for investors to trade frequently with relatively small amounts in the presence of such costs. Contrary to previous papers that report that the strongest effects that transaction costs can have on the risk premium are of the order of a few percent, I find that the effects could be of the order of tens of percent conditioned that investors are sufficiently heterogeneous. Frequent trading in the presence of transaction costs substantially changes heterogeneity in demands across investors, resulting in a significant liquidity premium.

Keywords: Equilibrium, Asset Pricing, Transaction Costs

JEL Classification: G11, G12

Suggested Citation

Isaenko, Sergey, Transaction Costs, Frequent Trading, and Stock Prices. (October 1, 2017). Journal of Financial Markets, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3148095 or http://dx.doi.org/10.2139/ssrn.3148095

Sergey Isaenko (Contact Author)

Concordia University, Quebec - Department of Finance ( email )

John Molson School of Business
Concordia University. 1455 de Maisonneuve Blvd.W.
Montreal, Quebec, H3G 1M8
Canada
1-514-848-2424 ext.2797 (Phone)
1-514-848-4500 (Fax)

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