Transaction costs and holding periods for common stocks

Article Abstract:

Amihud and Mendelson (1986) and Constantinides (1986) provide a theoretical basis for the proposition that assets with higher transactions costs are held by investors for longer holding periods, and vice versa. We examine average holding periods and bid-ask spreads for Nasdaq stocks from 1983 through 1991 and for New York Stock Exchange (NYSE) stocks from 1975 through 1989 and find strong evidence that, as predicted, the length of investors' holding periods is related to bid-ask spreads. We also find that the relation between holding periods and bid-ask spreads is much stronger on Nasdaq, where spreads are larger, than on the NYSE, were spreads are smaller. (Reprinted by permission of the publisher.)

New York Stock Exchange Inc., Nasdaq Stock Market Inc.

---

Limit order trading

Article Abstract:

We analyze the rationale for limit order trading. Use of limit orders involves two risks: (1) an adverse information event can trigger an undesirable execution, and (2) favorable news can result in a desirable execution not being obtained. On the other hand, a paucity of limit orders can result in accentuated short-term price fluctuations that compensate a limit order trader. Our empirical tests suggest that trading via limit orders dominates trading via market orders for market participants with relatively well balanced portfolios, and that placing a network of buy and sell limit orders as a pure trading strategy is profitable. (Reprinted by permission of the publisher.)

---

Similar abstracts:

• Abstracts: Investing in food stocks. Food
• Abstracts: Earnings and risk changes surrounding primary stock offers. Disclosure practices of foreign companies interacting with U.S. markets
• Abstracts: Globalization, marketing resources, and performance: Evidence from China
• Abstracts: Competition and coalition among underwriters: the decision to join a syndicate
• Abstracts: Bookbuilding and strategic allocation. Bookbuilding: how informative is the order book?

This website is not affiliated with document authors or copyright owners. This page is provided for informational purposes only. Unintentional errors are possible.