NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

A Cross-Market Comparison of Institutional Equity Trading Costs

Louis K. C. Chan, Josef Lakonishok

NBER Working Paper No. 5374
Issued in December 1995
NBER Program(s):   AP

We compare execution costs (market impact plus commission) on the New York Stock Exchange (NYSE) and on Nasdaq for institutional investors. The differences in cost generally conform to each market's area of specialization. Controlling for firm size, trade size and the money management firm's identity, costs are lower on Nasdaq for trades in comparatively smaller firms. For the smallest firms, the cost advantage under a pre-execution benchmark is 0.68 percent. However, trading costs for the larger stocks are lower on NYSE. For the largest stocks, costs are lower by 0.48 percent on NYSE. Given the extreme difficulty of controlling for variables other than market structure, however, comparisons of costs should be interpreted with extreme caution.

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Document Object Identifier (DOI): 10.3386/w5374

Published: Published as "Institutional Equity Trading Costs: NYSE Versus Nasdaq", Journal of Finance, Vol. 52, no. 2 (June 1997): 713-735.

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