Search costs and investor trading activity: Evidence from limit order books

William Lin; Shih Chuan Tsai; David Sun

doi:10.2753/REE1540-496X480301

Search costs and investor trading activity: Evidence from limit order books

William Lin, Shih Chuan Tsai, David Sun

Research output: Contribution to journal › Review article › peer-review

3 Citations (Scopus)

Abstract

In this study, we analyze investor trading behavior based not on information-related assumptions but on the search model of Vayanos and Wang (2007). Our study shows that search cost dictates trading polarization across investors, firm size, and time of day. We find that individual investors prefer to trade at market open, while institutional investors trade more heavily near market close. Trading costs indicate that it is less costly for institutional investors to trade large cap stocks at market close than at open. Search cost is related significantly to order-based market liquidity measures depending on time of day, market capitalizations, and investor type.

Original language	English
Pages (from-to)	4-30
Number of pages	27
Journal	Emerging Markets Finance and Trade
Volume	48
Issue number	3
DOIs	https://doi.org/10.2753/REE1540-496X480301
Publication status	Published - 2012 May 1

Keywords

execution cost
limit order book
liquidity
market depth
search model

ASJC Scopus subject areas

Finance
Economics, Econometrics and Finance(all)

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