The Determinants of Execution Costsin Short-Term Money Markets

Authors

Alessandro Frino, University of SydneyFollow
Jennifer Kruk, University of Sydney
Andrew Lepone, University of SydneyFollow

RIS ID

117932

Publication Details

Frino, A., Kruk, J. & Lepone, A. (2011). The Determinants of Execution Costsin Short-Term Money Markets. The Financial Review (Statesboro), 46 (3), 337-355.

Abstract

Prior research attributes the observed negative relation between execution costs and tradesize in opaque markets to two factors-information asymmetry and broker-client relationships.We provide evidence that a trader's ex ante transaction price information and the relationshiptraders have with their brokers are both significant determinants of a trader's execution costsin an opaque market; however, traders who establish strong relationships with their brokerswill achieve a greater reduction in execution costs than traders with ex ante transaction priceinformation. We also find evidence that trade size has little explanatory power after controllingfor a trader's ex ante transaction price information and broker-client relationships.