« How to Make Money Trading European Stocks | Main | What Are the Best Value Ratios? »



Feed You can follow this conversation by subscribing to the comment feed for this post.

Jeff Young

Fascinating work - thanks so much for sharing it. Have you ever looked at slippage associated with Market on Close orders?

Yuval Taylor

No, I have not. I've actually never used one. What's your experience with them?

Jeff Young

I use them, but I can't say that I have enough data to perform a systematic analysis. Supposedly, placing a MOC order benefits from the increased liquidity that results from aggregating a large number of buy and sell orders. I like them because (a) they are convenient, i.e. "set it and forget it": and (b) I get the closing price, which eliminates slippage (my trading strategies are benchmarked off of the closing price) - but my experience has been that when using them on more thinly traded stocks, I sometimes get a price that is unfavorable relative to the price just before the close; so I only use them on the most heavily traded stocks.

Jeff Young

One other question...you note above that "There isn’t an easy way to put together the cost of a trade based on market impact and the cost based on the spread...Personally, I just average the two to estimate the total cost of a buy or sell". Just to confirm - you average the two (rather than add them together)? So if half the spread is 0.20% and market impact is 0.10%, the total cost would be 0.15% (rather than 0.30%)?

Yuval Taylor

Yes. Think about it this way. I run a linear regression on my data to come up with the cost of market impact. Then I run another entirely separate linear regression to come up with the cost of a bid-ask spread. It wouldn't make sense to add them together. I have to average them, right? I suppose I could run a multiple linear regression to come up with some sort of formula that takes both into account, but with data this noisy that would be hard.

Jeff Young

Makes sense - I was thinking that half of the bid-ask spread was the minimum expected transaction cost, exclusive of market impact (e.g. if trading only one share) and that larger purchases/sales would increase the costs from this baseline. But it sounds like your estimate of half the bid-ask spread reflected orders of a variety of different sizes, so that smaller orders might incur transaction costs of less than half of the bid-ask spread, and larger ones more. Is this how you are looking at it?

Yuval Taylor

Yes, that's right. I'm looking at as much data as I can, and considering the spread costs separately from the market impact costs. The data is therefore extremely noisy . . .

Verify your Comment

Previewing your Comment

This is only a preview. Your comment has not yet been posted.

Your comment could not be posted. Error type:
Your comment has been posted. Post another comment

The letters and numbers you entered did not match the image. Please try again.

As a final step before posting your comment, enter the letters and numbers you see in the image below. This prevents automated programs from posting comments.

Having trouble reading this image? View an alternate.


Post a comment

Your Information

(Name and email address are required. Email address will not be displayed with the comment.)