Measuring institutional trading costs and the implications for finance research: The case of tick size reductions

• 成果类型: Article
• 署名作者: Eaton, Gregory W.; Irvine, Paul J.; Liu, Tingting
• 署名单位: Oklahoma State University System; Oklahoma State University - Stillwater; Texas Christian University; Iowa State University
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2020.09.003
• 发表日期: 2021
• 页码: 832-851
• 关键词: Decimalization; Institutional trading costs; Market microstructure; STOCK LIQUIDITY; Tick size reductions

摘要

Using proprietary institutional trade data, we construct a price impact measure that represents the costs faced by institutional investors. We show that many widely used liquidity measures do not adequately capture institutional trading costs. We then find that institutional trading costs are not dramatically impacted by decimalization, casting doubt on the widely used identification strategy that employs decimalization as an exogenous shock to liquidity, particularly institutional liquidity. Indeed, we find that conclusions from prior research are significantly altered when we measure liquidity using institutional trading data. (C) 2020 Elsevier B.V. All rights reserved.