Further analysis of the liquidity and information components of institutional orders: Active versus passive funds

Frino, A; Gallagher, DR; Oetomo, T

Further analysis of the liquidity and information components of institutional orders: Active versus passive funds

Frino, A Gallagher, DR Oetomo, T

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Publisher:: Elsevier
Publication Type:: Journal Article
Citation:: Pacific-Basin Finance Journal, 2006, 14 (5), pp. 439 - 452
Issue Date:: 2006-01

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Field	Value	Language
dc.contributor.author	Frino, A	en_US
dc.contributor.author	Gallagher, DR	en_US
dc.contributor.author	Oetomo, T	en_US
dc.date.issued	2006-01	en_US
dc.identifier.citation	Pacific-Basin Finance Journal, 2006, 14 (5), pp. 439 - 452	en_US
dc.identifier.issn	0927-538X	en_US
dc.identifier.uri	http://hdl.handle.net/10453/10249
dc.description.abstract	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.	en_US
dc.publisher	Elsevier	en_US
dc.relation.ispartof	Pacific-Basin Finance Journal	en_US
dc.subject.classification	Finance	en_US
dc.title	Further analysis of the liquidity and information components of institutional orders: Active versus passive funds	en_US
dc.type	Journal Article
utslib.citation.volume	5	en_US
utslib.citation.volume	14	en_US
utslib.for	150201 Finance	en_US
utslib.for	1502 Banking, Finance and Investment	en_US
utslib.for	1501 Accounting, Auditing and Accountability	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
utslib.copyright.status	closed_access
pubs.consider-herdc	false	en_US
pubs.issue	5	en_US
pubs.volume	14	en_US

Abstract:

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.

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http://hdl.handle.net/10453/10249