Transaction Costs in Dealer Markets: Evidence From The London Stock Exchange / Peter C. Reiss, Ingrid M. Werner.

Format:

Book

Author/Creator:

Reiss, Peter C.

Contributor:

National Bureau of Economic Research.

Werner, Ingrid M.

Series:

Working Paper Series (National Bureau of Economic Research) no. w4727.

NBER working paper series no. w4727

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Transaction Costs in Dealer Markets

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1994.

Summary:

This paper describes regularities in the intraday spreads and prices quoted by dealers on the London Stock Exchange. It develops a measure of spread-related transaction costs, one that recognizes dealers' willingness to price trades within their quoted spreads. This measure of transaction costs shows that trading costs are systematically related to a trade's size, characteristics of the trading counterparties, and security characteristics. Customers pay the full spread on small trades while medium to large trades receive more favorable execution. Market makers only discount very large customer trades while dealers regularly discount medium to large trades. Inter-dealer trades generally receive favorable execution, and discounts increase in size. Market makers do not discount trades with each other over the phone, but do discount when trading anonymously using inter-dealer-brokers. Quoted and touch spreads are falling in the number of market makers. The rate of decline is interpreted as reflecting economies of scale in market making.

Notes:

Print version record

May 1994.