A simple cost reduction strategy for small liquidity traders: Trade at the opening

Raymond M. Brooks, Tie Su

Research output: Contribution to journalArticle

13 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)525-540
Number of pages16
JournalJournal of Financial and Quantitative Analysis
Volume32
Issue number4
DOIs
StatePublished - Dec 1997
Externally publishedYes

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ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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