A Simple Cost Reduction Strategy for Small Liquidity Traders: Trade at the Opening

Journal of Financial and Quantitative Analysis, December 1997

Posted: 9 Jan 1998

See all articles by Tie Su

Tie Su

University of Miami - Department of Finance

Raymond M. Brooks

Oregon State University - College of Business

Abstract

We extend the market microstructure literature by examining trading strategies of a small discretionary liquidity trader in call and continuous markets. Our investigation of trading strategies uses intraday market and limit orders, and introduces the market-at-open order as an alternative strategy for a small liquidity trader. We find that a small trader can reduce transaction costs by trading at the opening. Using tick-by-tick transaction data, we demonstrate that the market-at-open order consistently produces better prices than market and limit orders executed during the trading day.

JEL Classification: G12, G14

Suggested Citation

Su, Tie and Brooks, Raymond M., A Simple Cost Reduction Strategy for Small Liquidity Traders: Trade at the Opening. Journal of Financial and Quantitative Analysis, December 1997, Available at SSRN: https://ssrn.com/abstract=45217

Tie Su (Contact Author)

University of Miami - Department of Finance ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States
305-284-1885 (Phone)
305-284-4800 (Fax)

Raymond M. Brooks

Oregon State University - College of Business ( email )

200 Bexell Hall Dept. of Accounting, Finance, International Management
Corvallis, OR 97331
United States
541-737-3687 (Phone)

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