The Dynamics of Implicit Transactions Costs ()
ABSTRACT
We use tick-by-tick data to study the dynamics of different components of implicit trading costs, including market impact cost, proportional cost, and fixed cost, over a decade. We model the proportional cost and the fixed cost as compensation for an affine structure of trading costs faced by the market maker. We find that the market impact cost remains stable over time, whereas the fixed cost and the proportional cost decrease significantly over time. We also find that the fixed cost is generally not equal to zero. Surprisingly, it goes negative lately.
Share and Cite:
Guo, M. (2020) The Dynamics of Implicit Transactions Costs.
Journal of Mathematical Finance,
10, 705-716. doi:
10.4236/jmf.2020.104041.