Execution costs associated with institutional trades on the Australian Stock Exchange

This paper analyses the magnitude and determinants of execution costs associated with institutional trades on the Australian Stock Exchange (ASX), and compares the results with US findings. The results suggest that execution costs are small, and no greater than approximately 0.30% of the value of a round trip transaction. Purchases are found to be associated with greater execution costs than sales, and a price reversal follows purchases whilst a price continuation follows sales. All these results, apart from the latter, bear a remarkable similarity to US findings. An analysis of the determinants of execution costs suggests that market returns, the percentage of the order executed using market orders and the identity of the broker underlying the trade are significant explanatory variables. Further, stock liquidity and trade complexity are significant determinants of execution costs associated with purchases only.