Journal of Financial Economics Vol. 139 No. 3 2021
Measuring institutional trading costs and the implications for finance research: The case of tick size reductions
Abstract
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.
- DOI
- 10.1016/j.jfineco.2020.09.003
- Volume
- 139
- Issue
- 3
- Pages
- 832-851
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref