What Factors Increase the Risk of Incurring High Market Impact Costs?

Jacob A. Bikker (1) , Laura Spierdijk (2) , Pieter-Jelle van Der Sluis (3)

1 Supervision Strategy
2 Department of Econometrics
3 Department of Finance and Financial Sector Management

This paper applies quantile regression to assess the factors that influence the risk of incurring high trading costs. Using data on the equity trades of the world's second largest pension fund in the first quarter of 2002, we show that trade timing, momentum, volatility, and the type of broker intermediation are the major determinants of the risk of incurring high trading costs. Such risk is increased substantially by either high or low momentum and by strong volatility. Moreover, agency trades are substantially more risky in terms of trading costs than similar principal trades. Finally, we show that the quantile regression model succeeds well in forecasting future trading costs.

Mots clés: Social Sciences & Humanities

Jacob A. Bikker, Laura Spierdijk, Pieter-Jelle van Der Sluis. What Factors Increase the Risk of Incurring High Market Impact Costs?. Applied Economics, 2009, 42 (03), pp.369-387. ⟨10.1080/00036840701604461⟩. ⟨hal-00582168⟩