Hostname: page-component-78c5997874-t5tsf Total loading time: 0 Render date: 2024-11-15T06:29:40.519Z Has data issue: false hasContentIssue false
  • English
  • Français

A Simple Cost Reduction Strategy for Small Liquidity Traders: Trade at the Opening

Published online by Cambridge University Press:  06 April 2009

Raymond M. Brooks  and
Tie Su
Raymond M. Brooks
Affiliation:
Department of Accounting, Finance, and Information Management, Oregon State University, Corvallis, OR 97331-2603
Tie Su
Affiliation:
Department of Finance, University of Miami, Coral Gables, FL 33124-6552
Get access Rights & Permissions [Opens in a new window]

Abstract

We extend the market microstructure literature by examining trading strategies of a small discretionary liquidity trader in call and continuous markets. Our investigation of trading strategies uses intraday market and limit orders, and introduces the market-at-open order as an alternative strategy for a small liquidity trader. We find that a small trader can reduce transaction costs by trading at the opening. Using tick-by-tick transaction data, we demonstrate that the market-at-open order consistently produces better prices than market and limit orders executed during the trading day.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 32 , Issue 4 , December 1997 , pp. 525 - 540
Copyright
Copyright © School of Business Administration, University of Washington 1997

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Admati, A., and Pfleiderer, P.. “A Theory of Intraday Patterns: Volume and Price Variability.” Review of Financial Studies, 1 (Spring 1988), 3–40.CrossRefGoogle Scholar
Angel, J. “Who Gets Price Improvement on the NYSE?” Working Paper, Georgetown Univ. (1994).Google Scholar
Bagehot, W. “The Only Game in Town.” Financial Analysts Journal, 27 (1971), 12–14.CrossRefGoogle Scholar
Biais, B.; Hillion, P.; and Spatt, C.. “An Empirical Analysis of the Limit Order Book and the Order Flow in the Paris Bourse.” Journal of Finance, 50 (12 1995), 1655–1689.CrossRefGoogle Scholar
Blume, M. E., and Goldstein, M. A.. “Differences in Execution Prices among the NYSE, the Regionals and the NASD.” Working Paper, Rodney L. White Center for Financial Research, Wharton School (1992).CrossRefGoogle Scholar
Handa, P., and Schwartz, R.. “Limit Order Trading.” Journal of Finance, 51 (12 1996), 1835–1861.CrossRefGoogle Scholar
Harris, L. “Optimal Dynamic Order Submission Strategies in Some Stylized Trading Problems.” Working Paper, Univ. of Southern California (1994).Google Scholar
Harris, L., and Hasbrouck, J.. “The SuperDOT Evidence on Order Submission Strategy: Market vs. Limit Orders.” Journal of Financial and Quantitative Analysis, 31 (06 1996), 213–231.CrossRefGoogle Scholar
Huang, R., and Stoll, H.. “Dealer versus Auction Markets: A Paired Comparison of Execution Costs on NASDAQ and NYSE.” Journal of Financial Economics, 41 (07 1996), 317–357.CrossRefGoogle Scholar
Kyle, A. S. “Continuous Auctions and Insider Trading.” Econometrica, 53 (1985), 1315–1336.CrossRefGoogle Scholar
Monaco, S. “Liquidity and Information Flow in Securities Markets: The Effect of Sequential Variation in Market Structure.” Working Paper, Indiana Univ. (1996).Google Scholar
O'Hara, M.Market Microstructure Theory. Cambridge, MA: Blackwell Publishers Inc. (1994).Google Scholar
Stoll, H., and Whaley, R. E.. “Stock Market Structure and Volatility.” Review of Financial Studies, 3 (Fall 1990), 37–70.CrossRefGoogle Scholar