Which Factors Influence Trading Costs in Global Equity Markets?

Abstract

This article examines global trends in equity-related transaction costs and trading volume by identifying recent patterns in institutional brokerage commissions, indirect trading costs, and trading activity. The results indicate a steady decline in brokerage commissions around the world, but indirect trading costs appear to have reached a plateau. The fastest growth in trading volume can be found in the emerging markets of South America, but the United States leads the way in terms of the steepest reductions in transaction costs. The empirical evidence also shows there is a simultaneous relationship between global equity trading volume and transaction costs that is driven by trends in both U.S. and local equity markets. This suggests that global investors are likely becoming more cost-sensitive and increasingly open to directing orders to those international markets where transaction costs are lower.

TOPICS: Exchanges/markets/clearinghouses, equity portfolio management, global