ON TRANSACTION COSTS IN STOCK TRADING

Abstract

Liquidity is an important characteristic of a stock traded on thestock exchange. The expected value of transaction costs, which takes intoaccount the transaction's volume and duration, may be a consideredas an important measure of a liquidity of a traded stock. In this paper theformulas for expected transaction cost, caused by bid-ask spread and marketimpact are presented. Moreover, in this article, the problem of determininga duration of a transaction of a stock sale which minimizes the transactioncost and takes into account the forecast of the expected stock price on thestock exchange, is considered