Equity Trading by Institutional Investors. To Cross or Not to
Cross?
Equity Trading by Institutional Investors. To Cross or Not to
Cross?
By Randi Næs, Norges Bank and Bernt Arne Ødegaard,
Norwegian School of Management BI and
Norges Bank.
Abstract
The proliferation of market places and trading methods is a striking feature of
current equity markets. A stated goal of all the new trading arrangements is to reduce
transaction costs. We investigate costs in one new market place, the crossing network.
A crossing network is a satellite trading place; it uses prices derived from a primary
market, and merely matches on quantity. Using a data sample from a large
institutional investor, we provide evidence that low measured costs in crossing
networks are offset by substantial costs of trading failures. The costs of trading
failures due to adverse selection in the network's order execution, are not reflected
in standard measures of transaction costs.
The paper was published in the Journal of Financial Markets, 9 (2006), pages 79-99.
A preprint version of the paper is downloadable as a pdf (Adobe acrobat) file
For those with access to ScienceDirect the final version of the paper is available here