25th Annual IAJBS World Forum / Inaugural CJBE South Asia Regional Chapter Meeting

Experience level: 
Intermediate
Intended Audience: 
Faculty
Speaker(s): 
Rafiq Bhuyan
Authors: 
Dr. Rafiqul Bhuyan, Le Moyne College, Syracuse, USA Dr. Mohammad Sogir Hossain Khandoker, Jagannath University, Dhaka, Bangladesh

Managing Transaction Cost: Evidence from Buy-Side Real-Time Trading

In this research we explore whether by timing the investment decision, traders can minimize transaction cost of trading. It is no surprise among investment community that it takes a while for selecting a stock for making investment. After risk-return analysis, trader has to decide how many shares to buy and then once it is done, trader has to place the order either online or through broker. By the time the order is placed and executed there can be a time gap during which stock price may have moved causing trader to encounter implementation shortfall-an additional cost component that may affect further to the portfolio performance. Using real-time trading data on certain stocks for six consecutive months, we observe that, trading on Tuesday’s last trading hours, traders incur positively significant implementation shortfall at 5% level of significance. Friday’s last period trading gives traders a better position as the results indicate that trader’s implementation shortfall is reduced if traded in the last trading period on Friday. This finding support the seasonality literature that support that returns are positive on Fridays and traders indeed enjoy bargaining power trading last trading period of Fridays. We also find that Tuesday’s last trading period is also positively significant at 5% level implying that traders rush to take position on that day’s last trading period paying higher price. However, Friday is not important in managing execution cost as it turns out to be insignificant.