The Determinants of Execution Costs in Short‐Term Money Markets |
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Authors: | Alex Frino Jennifer Kruk Andrew Lepone |
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Institution: | University of Sydney |
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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. |
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Keywords: | execution costs opaque markets information asymmetry broker‐client relationships G14 G15 |
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