The 'Actual Retail Price' of Equity Trades

79 Pages Posted: 17 Aug 2022 Last revised: 15 Sep 2022

See all articles by Christopher Schwarz

Christopher Schwarz

University of California, Irvine - The Paul Merage School of Business

Brad M. Barber

University of California, Davis

Xing Huang

Washington University in St. Louis - Olin Business School

Philippe Jorion

University of California, Irvine - Paul Merage School of Business

Terrance Odean

University of California, Berkeley - Haas School of Business

Date Written: September 14, 2022

Abstract

We compare execution quality of six brokerage accounts across five brokers by generating a sample of 85,000 simultaneous market orders. Commission levels and payment for order flow (PFOF) differ across our accounts. We find that execution prices vary significantly across brokers: the mean account-level round-trip cost ranges from –0.07% to –0.45% excluding any commissions. The dispersion is due to off-exchange wholesalers systematically giving different execution prices for the same trades to different brokers. Across brokers, variation in PFOF cannot explain the large variation in price execution. We provide several suggestions for more informative disclosures on execution quality.

Keywords: retail trading, execution quality, bid/ask spread, market microstructure, payment for order flow, commissions, broker-dealers

JEL Classification: G12, G14, G50

Suggested Citation

Schwarz, Christopher and Barber, Brad M. and Huang, Xing and Jorion, Philippe and Odean, Terrance, The 'Actual Retail Price' of Equity Trades (September 14, 2022). Available at SSRN: https://ssrn.com/abstract=4189239 or http://dx.doi.org/10.2139/ssrn.4189239

Christopher Schwarz (Contact Author)

University of California, Irvine - The Paul Merage School of Business ( email )

Irvine, CA 92697-3125
United States

Brad M. Barber

University of California, Davis ( email )

Graduate School of Management
One Shields Avenue
Davis, CA 95616
United States
530-752-0512 (Phone)
530-752-2924 (Fax)

Xing Huang

Washington University in St. Louis - Olin Business School ( email )

Simon Hall 211
Washington University in St. Louis
St. Louis, MO 63130
United States

Philippe Jorion

University of California, Irvine - Paul Merage School of Business ( email )

Campus Drive
Irvine, CA 92697-3125
United States
949-824-5245 (Phone)
949-824-8469 (Fax)

Terrance Odean

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States
510-642-6767 (Phone)
510-666-2561 (Fax)

HOME PAGE: http://www.haas.berkeley.edu/faculty/odean.html

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