Trading protocols and price discovery: Implicit transaction costs in Indian single stock futures

2020 ◽  
Vol 40 (11) ◽  
pp. 1793-1806 ◽  
Author(s):  
Edward Curran ◽  
Jack Hunt ◽  
Vito Mollica
Keyword(s):  
Transaction Costs ◽  
Price Discovery ◽  
Single Stock Futures ◽  
Implicit Transaction Costs

scholarly journals Paying Attention: Overnight Returns and the Hidden Cost of Buying at the Open

2012 ◽  
Vol 47 (4) ◽  
pp. 715-741 ◽  
Author(s):  
Henk Berkman ◽  
Paul D. Koch ◽  
Laura Tuttle ◽  
Ying Jenny Zhang
Keyword(s):  
Transaction Costs ◽  
Investor Sentiment ◽  
Strong Tendency ◽  
Retail Investors ◽  
Hidden Cost ◽  
Retail Investor ◽  
Implicit Transaction Costs

AbstractWe find a strong tendency for positive returns during the overnight period followed by reversals during the trading day. This behavior is driven by an opening price that is high relative to intraday prices. It is concentrated among stocks that have recently attracted the attention of retail investors, it is more pronounced for stocks that are difficult to value and costly to arbitrage, and it is greater during periods of high overall retail investor sentiment. The additional implicit transaction costs for retail traders who buy high-attention stocks near the open frequently exceed the effective half spread.

scholarly journals IMPLICIT TRANSACTION COSTS AND THE FUNDAMENTAL THEOREMS OF ASSET PRICING

2017 ◽  
Vol 20 (04) ◽  
pp. 1750024 ◽  
Author(s):  
ERINDI ALLAJ
Keyword(s):  
Asset Pricing ◽  
Transaction Costs ◽  
Price Impact ◽  
Quadratic Variation ◽  
Trading Strategies ◽  
Arbitrage Pricing Theory ◽  
Bid Ask Spread ◽  
Bid Price ◽  
Equivalent Probability Measure ◽  
Implicit Transaction Costs

This paper studies arbitrage pricing theory in financial markets with implicit transaction costs. We extend the existing theory to include the more realistic possibility that the price at which the investors trade is dependent on the traded volume. The investors in the market always buy at the ask and sell at the bid price. Implicit transaction costs are composed of two terms, one is able to capture the bid-ask spread, and the second the price impact. Moreover, a new definition of a self-financing portfolio is obtained. The self-financing condition suggests that continuous trading is possible, but is restricted to predictable trading strategies having cádlág (right-continuous with left limits) and cáglád (left-continuous with right limits) paths of bounded quadratic variation and of finitely many jumps. That is, cádlág and cáglád predictable trading strategies of infinite variation, with finitely many jumps and of finite quadratic variation are allowed in our setting. Restricting ourselves to cáglád predictable trading strategies, we show that the existence of an equivalent probability measure is equivalent to the absence of arbitrage opportunities, so that the first fundamental theorem of asset pricing (FFTAP) holds. It is also shown that the use of continuous and bounded variation trading strategies can improve the efficiency of hedging in a market with implicit transaction costs. To better understand how to apply the theory proposed we provide an example of an implicit transaction cost economy that is linear and nonlinear in the order size.

Algorithmic Trading and Transaction Costs

2020 ◽  
pp. 189-219
Author(s):  
George Chalamandaris ◽  
Dimitrios Antonopoulos
Keyword(s):  
Transaction Costs ◽  
Hedge Fund ◽  
Relative Volume ◽  
Trading Strategies ◽  
Algorithmic Trading ◽  
Price Momentum ◽  
Out Of Sample ◽  
High Level ◽  
Implicit Transaction Costs

“Algos” are algorithmic trading strategies that are meant to optimize the execution quality of the trades in terms of transaction costs and market-timing. This chapter presents the transaction costs taxonomy and popular algorithmic execution strategies. Authors empirically examine a dataset of hedge fund transactions. Our results suggest that implicit transaction costs are characterized by a significant buy-sell asymmetry. To get some insight about the possible determinants of Implicit Transaction Costs, authors investigate the algo type and stock characteristics such as market capitalization, relative volume, inverse prior close, price momentum, buy indicator and trade duration. Both in-sample and out-of-sample tests show that a significant portion of transaction costs can be anticipated before the trade execution. Results show that high-level execution strategies can be constructed to optimize the algo choice.

scholarly journals The Role of Satellite Stock Exchanges: A Case Study of the Lahore Stock Exchange

2009 ◽  
Vol 14 (2) ◽  
pp. 1-47 ◽  
Author(s):  
Jamshed Y. Uppal
Keyword(s):  
Transaction Costs ◽  
Market Integration ◽  
Price Discovery ◽  
Stock Exchange ◽  
Regulatory Compliance ◽  
Stock Exchanges ◽  
Informational Efficiency ◽  
Exchange Performance ◽  
Processing Information

In many countries, capital markets are often served by multiple stock exchanges, typically with one national or dominant exchange and several regional or satellite exchanges. While multiple exchanges create a competitive landscape, they also lead to fragmented liquidity and diseconomies in operations. This paper examines the role of the Lahore Stock Exchange (LSE) in comparison with the country’s dominant exchange, the Karachi Stock Exchange (KSE), in four areas: (i) market efficiency in processing information, (ii) transaction costs, (iii) contribution to price discovery, and (iv) market integration. A comparative analysis of the exchange performance indicates the two exchanges to be at par in terms of informational efficiency and transaction costs. There is evidence of informational linkages and interdependencies between the two exchanges; the LSE appears to contribute to price discovery and competes to an appreciable extent. Against the background of proposals to merge the country’s three stock exchanges, a major consideration in evaluating public policy is the relative performance of the LSE and its viability as an effective competitor. Eliminating interexchange competition by merging the stock exchanges is predicted to lead to higher transaction costs, lower incentives for regulatory compliance, and diminished motivation for promoting capital market development.

scholarly journals Explicit and Implicit Transaction Costs in Dairy Farms in West Bandung District

2018 ◽  
Vol 23 (3) ◽  
pp. 246-258
Author(s):  
Litna Nurjannah Ginting ◽  
◽  
Nunung Kusnasdi ◽  
Rachmat Pambudy ◽  
◽  
...  
Keyword(s):  
Transaction Costs ◽  
Dairy Farms ◽  
Implicit Transaction Costs

The impact of transaction costs on price discovery

2003 ◽  
Vol 11 (2) ◽  
pp. 139-151 ◽  
Author(s):  
Alex Frino ◽  
Andrew West
Keyword(s):  
Transaction Costs ◽  
Price Discovery ◽  
The Impact

scholarly journals Optimization of management control costs in the context of transaction expenses (in terms of an educational organization)

2020 ◽  
Vol 89 ◽  
pp. 07006
Author(s):  
M.V. Chuvashlova ◽  
M.N. Pavlenkov ◽  
O.F. Ermishina
Keyword(s):  
Optimal Control ◽  
Transaction Costs ◽  
Management Control ◽  
Control Measures ◽  
Minimum Amount ◽  
Educational Organization ◽  
Optimal Amount ◽  
Marginal Costs ◽  
Implicit Transaction Costs

The article examines the importance of management control for optimizing the transaction expenses in an educational organization. The author highlighted the opinions of the economists from various theoretical positions. Examples of changes in the optimal control costs, the occurrence of losses from the organization of ineffective control nave been considered, possible ways of solving the problems that have arisen have been given. The extensive material has been structured, which made it possible to highlight the relevance of the study of transaction expenses. According to the authors, the minimum amount of control costs is determined at the point of equality of explicit and implicit transaction costs, that is, the losses of the organization and the costs of executing contracts. At the same time, the optimal amount of control costs will be in the area of relevance of the marginal costs of control and the marginal benefits from the implementation of control measures. Deviations from this zone in any direction are undesirable for the organization.

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