The determinants of execution costs in short-term money markets

Alex Frino, Jennifer Kruk, Andrew Lepone

Research output: Contribution to journalArticlepeer-review

Abstract

Prior research attributes the observed negative relation between execution costs and trade size in opaque markets to two factors—information asymmetry and broker-client relationships. We provide evidence that a trader's ex ante transaction price information and the relationship traders have with their brokers are both significant determinants of a trader's execution costs in an opaque market; however, traders who establish strong relationships with their brokers will achieve a greater reduction in execution costs than traders with ex ante transaction price information. We also find evidence that trade size has little explanatory power after controlling for a trader's ex ante transaction price information and broker-client relationships.
Original languageEnglish
Pages (from-to)337-355
Number of pages19
JournalFinancial Review (Statesboro)
Volume46
Issue number3
DOIs
Publication statusPublished - 2011

Keywords

  • execution costs
  • opaque markets
  • information asymmetry
  • broker-client relationships

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