2008: The Trading Year in Review

Abstract

In the past year, the equity market observed more than its fair share of havoc, including the demise of longstanding financial institutions, real asset depreciation, one of the largest one-year losses on record, and record levels in the VIX volatility index. Transaction costs have more than doubled and the market's perception of the information content of trading (permanent market impact) has almost tripled. We have found significant evidence suggesting that actual transaction costs deviate from previously believed relationships (such as costs scaling with the square root of size) and that TCA models may break down in times of high-volatility regimes. Finally, we introduce the JPM Cost Index as a means to gauge the ever-changing trading environment and microstructure conditions.