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A Simple Cost Reduction Strategy for Small Liquidity Traders: Trade at the Opening

Published online by Cambridge University Press:  06 April 2009

Raymond M. Brooks  and
Tie Su
Raymond M. Brooks
Affiliation:
Department of Accounting, Finance, and Information Management, Oregon State University, Corvallis, OR 97331-2603
Tie Su
Affiliation:
Department of Finance, University of Miami, Coral Gables, FL 33124-6552
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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.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 32 , Issue 4 , December 1997 , pp. 525 - 540
Copyright
Copyright © School of Business Administration, University of Washington 1997

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