Transaction costs and strategic trading of German investment management firms

  • The aim of this study is to measure total transaction costs as well as the cost components for six German investment management firms from August 1st until October 31st 2001. The investigation is based on a unique order-level data set that includes all relevant information (e.g. time of investment decision, order-release to the broker and trade execution). For computing transaction costs we use tick by tick price data for the 75 stocks of the Euro Stoxx 50- and Stoxx 50-universe. Volume weighted, i.e. effectively paid, one way transaction costs sum up to 66.76 bp. Market pact is the highest cost component and amounts to 27.93 bp for volume weighted averages. According to a regression analysis market impact is driven by high volatilities and bid ask spreads; market momentum induces market impact to fall, indicating mean reversion of stock prices. High free float and market activity do not influence the market impact, but lead – just as high volatilities and bid ask spreads - to a reduction in trading aggressiveness. Trading duration decreases with high volatility and diminishing bid ask spreads. Overall, the results illustrate that to some extent German investment management firms trade strategically. Nevertheless, a further reduction in market impact, and therefore an increase in investment performance, seems to be possible, if traders pay greater attention on the liquidity indicators known already at order release.

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Metadaten
Author:Lutz Johanning
URN:urn:nbn:de:hbz:992-opus4-6831
DOI:https://doi.org/10.1111/jacf.12151
Publisher:WHU - Otto Beisheim School of Management
Place of publication:Vallendar
Document Type:Working Paper
Language:English
Date of Publication (online):2018/06/19
Year of first Publication:2002
Release Date:2018/06/19
Tag:Aktien; Corporate Governance; Kapitalmarkt; Portfolio-Management; Transaktionskosten
Capital market; Corporate governance; Portfolio management; Stocks; Transaction costs
Page Number:35
Note:
Published in: Journal of Applied Corporate Finance 27(2015)4, pp. 96-104
Institutes:WHU Finance & Accounting Group / Endowed Chair for Asset Management
JEL-Classification:G Financial Economics / G1 General Financial Markets / G11 Portfolio Choice; Investment Decisions
G Financial Economics / G2 Financial Institutions and Services / G23 Pension Funds; Other Private Financial Institutions
Licence (German):Copyright for this publication