EXECUTION COSTS

Peter Joakim Westerholm

Chapter 4 in Lecture Notes in Market Microstructure and Trading, 2019, pp 51-66 from World Scientific Publishing Co. Pte. Ltd.

Abstract: Summary of Lecture 3This lecture provides a detailed definition of transaction (trade execution) costs and how they are measured.The focus is on costs of trading rather than investment return performance. This is emphasized in a discussion contrasting measures of investment performance with measures of transaction costs.Understanding Volume Weighted Average Price (VWAP) and Implementation Shortfall (IS) are core aims of this section. When we calculate IS we focus on Commissions, Market Impact vs. midpoint on order arrival and Opportunity Cost vs. midpoint price on order arrival. We ignore delay costs (used in some applications) as these can be subjective and sufficient information is not always available.Exercises in how to compute transaction costs with solutions are provided at the end of the lecture.

Keywords: Trading; Securities Markets; Priced Discovery; Liquidity; Microstructure; Investments (search for similar items in EconPapers)
JEL-codes: F10 (search for similar items in EconPapers)
Date: 2019
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