TY - JOUR
T1 - Further analysis of the liquidity and information components of institutional orders: Active versus passive funds
AU - Frino, Alex
AU - Gallagher, David R.
AU - Oetomo, Teddy N.
N1 - Funding Information:
The authors are grateful to the investment managers who supplied institutional trade data used in this paper, and the Securities Industry Research Centre of Asia-Pacific (SIRCA) who provided data. This research was funded by the CRC for Technology Enabled Capital Markets. The authors thank the Editor, Kalok Chan, two anonymous referees, Joel Fabre, Vito Mollica, Andrew Lepone, Luke Bortoli, Andrew Tan, Danika Wright and participants of the Australasian Finance and Banking Conference 2003 for helpful comments, and Justin Bull and Nic McGilvray for programming assistance.
PY - 2006/11
Y1 - 2006/11
N2 - Previous research examining the price impact of institutional trading concludes that index funds incur higher liquidity costs due to the higher demand for trading immediacy. However, this conclusion has only been inferred by comparing the total price impact of active and index funds. This study extends the literature by decomposing the price impact of both active and index funds' trades into liquidity (temporary) and information (permanent) components. Index fund trades incur higher liquidity costs and generate lower returns than active funds' trades. Indeed, the evidence presented in this study reveals the execution costs of index funds' trades are entirely liquidity-driven.
AB - Previous research examining the price impact of institutional trading concludes that index funds incur higher liquidity costs due to the higher demand for trading immediacy. However, this conclusion has only been inferred by comparing the total price impact of active and index funds. This study extends the literature by decomposing the price impact of both active and index funds' trades into liquidity (temporary) and information (permanent) components. Index fund trades incur higher liquidity costs and generate lower returns than active funds' trades. Indeed, the evidence presented in this study reveals the execution costs of index funds' trades are entirely liquidity-driven.
UR - http://www.scopus.com/inward/record.url?scp=33749654421&partnerID=8YFLogxK
U2 - 10.1016/j.pacfin.2006.02.001
DO - 10.1016/j.pacfin.2006.02.001
M3 - Article
AN - SCOPUS:33749654421
SN - 0927-538X
VL - 14
SP - 439
EP - 452
JO - Pacific Basin Finance Journal
JF - Pacific Basin Finance Journal
IS - 5
ER -