Trade size clustering and the cost of trading at the London Stock Exchange
Verousis, Thanos Ap Gwilym, Owain
Verousis, Thanos
Ap Gwilym, Owain
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Publication Type
Journal article with impact factor
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Supervisor
Publication Year
2013
Journal
International Review of Financial Analysis
Book
Publication Volume
27
Publication Issue
April
Publication Begin page
91
Publication End page
102
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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.
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Keywords
Trade-Size Clustering, Transaction Costs, Price Impact, LSE