Search Costs and Investor Trading Activity: Evidence from Limit Order Books

William T. Lin, Shih-Chuan Tsai and David Sun

Emerging Markets Finance and Trade, 2012, vol. 48, issue 3, 4-30

Abstract: In this study, we analyze investor trading behavior based not on information-related assumptions but on the search model of Vayanos and Wang (2007). Our study shows that search cost dictates trading polarization across investors, firm size, and time of day. We find that individual investors prefer to trade at market open, while institutional investors trade more heavily near market close. Trading costs indicate that it is less costly for institutional investors to trade large cap stocks at market close than at open. Search cost is related significantly to order-based market liquidity measures depending on time of day, market capitalizations, and investor type.

Keywords: execution cost; limit order book; liquidity; market depth; search model (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (4)

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Working Paper: Search costs and investor trading activity: evidences from limit order book (2011)
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