TRANSACTION COSTS AND MARKET IMPACT IN INVESTMENT MANAGEMENT

Marek Kociñski ()
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Marek Kociñski: Faculty of Applied Informatics and Mathematics, Warsaw University of Life Sciences-SGGW

"e-Finanse", 2014, vol. 10, issue 4, 28-35

Abstract: The aim of this article is to analyse the major sources of transaction costs in financial markets, in particular to find the amounts of such costs on the Warsaw Stock Exchange (WSE). Sources of transaction costs are considered: commissions, bid-ask spread and market impact. The commissions are only briefly described since they are explicitly stated and easily measured. More attention is paid to the bid-ask spread which is one of the main causes of trading costs. It is shown that the investor who wants to outperform the Polish market should usually expect a much higher bid-ask spread than it follows from the officially used calculations. Then it is demonstrated how historical spreads can be used in predicting their future values. This seems to be important from the practical point of view, since forecasting trading costs is a compelling task for financial managers. Next, market impact and market impact costs are considered. The practical method of measuring these is applied and discussed.

Keywords: transaction costs; bid-ask spread; market impact Least Squares Method (search for similar items in EconPapers)
JEL-codes: C5 G11 G24 (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:rze:efinan:v:10:y:2014:i:4:p:28-35

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