Bridge over ocean
1 July 1998 Financial Analysts Journal Volume 54, Issue 4

The Cost of Institutional Equity Trades

  1. Donald B. Keim
  2. Ananth Madhavan, PhD

Presented are an overview of the findings from the recent literature on the cost of U.S. equity trades for institutional investors and new evidence on trading costs from a large sample of institutional trades. The findings discussed have important implications for policymakers and investors: Implicit trading costs are economically significant; equity trading costs vary considerably and vary systematically with trade difficulty and order-placement strategy; and whether a trade price represents “best execution” depends on detailed data for the trade's entire order-submission process, especially information on pretrade decision variables, such as the trading horizon.

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