Transaction Costs and Institutional Trading in Small-Cap Equity Funds
32 Pages Posted: 25 Oct 2006
Date Written: October 2006
This paper examines the magnitude and determinants of trading costs for small-cap funds in Australia. The total price impact for these funds is 0.67 (-0.62) percent for purchases (sales). This is significantly larger than costs reported in prior research. No significant asymmetries in the magnitude or direction of price impacts are observed. Consistent with existing literature, trade duration, fund investment style and manager identity are determinants of price impact. Analysis of a new variable, fund status, reveals that funds which are closed to new money incur significantly lower price impacts on sales compared to funds which remain open.
Keywords: transaction costs, small-cap funds, price impact
JEL Classification: G14, G19
Suggested Citation: Suggested Citation