Cheap versus Expensive Trades: Assessing the Determinants of Market Impact Costs

Jacob Bikker (), Laura Spierdijk and Pieter Jelle van der Sluis ()

DNB Working Papers from Netherlands Central Bank, Research Department

Abstract: This paper assesses the determinants of market impact costs of institutional equity trades, using unique data from the world’s second largest pension fund. We allow the impact of trade characteristics and market conditions on trading costs to depend on the level of trading costs itself and establish significant differences in the responses of cheaper and more expensive trades. We explain the distinct responses from differences in information content and demand for liquidity between trades with high and low trading costs. Finally, to illustrate the practical relevance of the approach, we use our method to forecast future trading costs.

Keywords: market impact costs; quantile regression; forecasting market impact costs (search for similar items in EconPapers)
JEL-codes: G11 C53 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin, nep-fmk and nep-for
Date: 2005-12
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Persistent link: http://EconPapers.repec.org/RePEc:dnb:dnbwpp:069

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