Trading volume shares and market quality: Pre- and post- zero commissions

Pankaj K. Jain, Suchismita Mishra, Shawn M. O'Donoghue and Le Zhao

Journal of Empirical Finance, 2024, vol. 79, issue C

Abstract: After the adoption of zero-commissions by major brokers, they increasingly route orders to wholesale market makers to possibly earn payment for order flow given the loss of commissions. Retail investors assets held by zero-commission and commission-charging brokers increase 7 % and decrease 9 %, respectively. Retail investors earn less price improvement per share and submit more orders and smaller orders. Effective spreads decline because retail limit prices are increasingly posted within the bid-ask spread. Intraday volatility increases and price impact falls, as orders become more uninformed, while realized spreads remain unchanged.

Keywords: Wholesale market makers; Commissions; Brokers; Retail trading; Payment for order flow, and short squeeze (search for similar items in EconPapers)
JEL-codes: D4 G12 G14 L11 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:79:y:2024:i:c:s0927539824000987

DOI: 10.1016/j.jempfin.2024.101564

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