Trading Fees and Efficiency in Limit Order Markets

Jean-Edouard Colliard and Thierry Foucault

The Review of Financial Studies, 2012, vol. 25, issue 11, 3389-3421

Abstract: Competition among trading platforms has considerably reduced trading fees in stock markets. We show that this evolution is not necessarily beneficial to investors. Although they increase gains from trade when a trade happens, lower trading costs can induce investors to post limit orders with a smaller execution probability. In this case, gains from trade are realized less frequently and investors can be worse off. Our model has testable implications for the effects of trading fees and their breakdown between liquidity suppliers and liquidity demanders on limit order fill rates and bid-ask spreads. The Author 2012. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oup.com., Oxford University Press.

Date: 2012
References: Add references at CitEc
Citations: View citations in EconPapers (65)

Downloads: (external link)
http://hdl.handle.net/10.1093/rfs/hhs089 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Trading Fees and Efficiency in Limit Order Markets (2012)
Working Paper: Trading Fees and Efficiency in Limit Order Markets (2012)
Working Paper: Trading fees and efficiency in limit order markets (2012)
Working Paper: Trading Fees and Efficiency in Limit Order Markets (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:rfinst:v:25:y:2012:i:11:p:3389-3421

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

The Review of Financial Studies is currently edited by Itay Goldstein

More articles in The Review of Financial Studies from Society for Financial Studies Oxford University Press, Journals Department, 2001 Evans Road, Cary, NC 27513 USA.. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().