Assessing the Quality of a Security Market: A New Approach to Transaction-Cost Measurement

Joel Hasbrouck

The Review of Financial Studies, 1993, vol. 6, issue 1, 191-212

Abstract: I discuss a new method for measuring the deviations between actual transaction prices and implicit efficient prices. The approach decomposes security transaction prices into random-walk and stationary components. The random-walk component may be identified with the efficient price. The stationary component, the difference between the efficient price and the actual transaction price, is termed the pricing error. Its dispersion is a natural measure of market quality. I describe practical strategies for estimating these quantities. For a sample of NYSE stocks, the average pricing error standard deviation estimate is roughly 0.33 percent of the stock price. If the pricing error is normally distributed.and if it is always a positive cost incurred by the transaction cost for these traders is 0.26 percent of the stock price. The dispersion of the pricing error is also found to be elevated at the beginning and end of the trading session. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

Date: 1993
References: Add references at CitEc
Citations: View citations in EconPapers (210)

Downloads: (external link)
http://www.jstor.org/fcgi-bin/jstor/listjournal.fcg/08939454 full text (application/pdf)
Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

Related works:
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:6:y:1993:i:1:p:191-212

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 ().