The Cost of Institutional Equity Trades

Donald B. Keim and Ananth Madhavan

Financial Analysts Journal, 1998, vol. 54, issue 4, 50-69

Abstract: Presented are an overview of the findings from the recent literature on the cost of U.S. equity trades for institutional investors and new evidence on trading costs from a large sample of institutional trades. The findings discussed have important implications for policymakers and investors: Implicit trading costs are economically significant; equity trading costs vary considerably and vary systematically with trade difficulty and order-placement strategy; and whether a trade price represents “best execution” depends on detailed data for the trade's entire order-submission process, especially information on pretrade decision variables, such as the trading horizon.

Date: 1998
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DOI: 10.2469/faj.v54.n4.2198

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