The Retail Execution Quality Landscape

Anne Haubo Dyhrberg, Andriy Shkilko and Ingrid Werner

No 19364, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We show that off-exchange (wholesaler) executions provide significant cost savings to retail investors. Despite industry concentration, the largest wholesalers offer the lowest costs, consistent with economies of scale. Most retail brokers route to several wholesalers and closely monitor wholesaler performance, rewarding those offering low execution costs with more order flow. The entry of a new large wholesaler results in a reduction of scale economies, followed by an increase in execution costs. While retail investors benefit from the current landscape across all stocks, execution quality in small stocks where retail investors are especially active sees the greatest improvement.

Keywords: Wholesalers (search for similar items in EconPapers)
JEL-codes: G20 G24 G28 (search for similar items in EconPapers)
Date: 2024-08
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