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Trade size clustering and the cost of trading at the London Stock Exchange

Verousis, Thanos and ap Gwilym, Owain (2013) 'Trade size clustering and the cost of trading at the London Stock Exchange.' International Review of Financial Analysis, 27. 91 - 102. ISSN 1057-5219

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Abstract

For the London Stock Exchange, this paper investigates differences in trading costs between market maker (off-book) and order book trades, in the context of clustering in trade sizes and prices. We report several substantial findings. Even after controlling for differences in trade size, the realised spread measure is lower for off-book trades. For the order book, trade size clustering is not associated with differences in transaction costs nor with differences in the information content of trades. For the off-book market, trades in clustered (popular) sizes carry significantly more information than non-clustered trades. Despite the significant differences in the price impact estimates between the order book and off-book, we show that traders placing large orders off-book are still better off than trading via the order book as they benefit from a large discount from the current midpoint price. Additionally, we highlight that price and size clustering tend to occur simultaneously rather than being substitutes in this market setting.

Item Type: Article
Uncontrolled Keywords: Trade-size clustering, Transaction costs, Price impact, LSE
Subjects: H Social Sciences > HG Finance
Divisions: Faculty of Social Sciences > Essex Business School
Faculty of Social Sciences > Essex Business School > Essex Finance Centre
Depositing User: Elements
Date Deposited: 14 Mar 2019 19:52
Last Modified: 14 Mar 2019 20:15
URI: http://repository.essex.ac.uk/id/eprint/24186

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