The price of immediacy

• 成果类型: Article
• 署名作者: Chacko, George C.; Jurek, Jakub W.; Stafford, Erik
• 署名单位: Santa Clara University; Harvard University; Harvard University
• 刊物名称: JOURNAL OF FINANCE
• ISSN/ISSBN: 0022-1082
• DOI: 10.1111/j.1540-6261.2008.01357.x
• 发表日期: 2008
• 页码: 1253-1290
• 关键词: DEMAND CURVES; liquidity; MARKET; INFORMATION; securities; MODEL

摘要

This paper models transaction costs as the rents that a monopolistic market maker extracts from impatient investors who trade via limit orders. We show that limit orders are American options. The limit prices inducing immediate execution of the order are functionally equivalent to bid and ask prices and can be solved for various transaction sizes to characterize the market maker's entire supply curve. We find considerable empirical support for the model's predictions in the cross-section of NYSE firms. The model produces unbiased, out-of-sample forecasts of abnormal returns for firms added to the S&P 500 index.