TRANSACTION COSTS IN INDONESIA STOCK MARKET: A STUDY IN THE AUTOMATION PERIOD

Mamduh M. Hanafi

Abstract


We studied transaction costs in Indonesia market extended closely by Bonser-Neal et al. (1999). They investigated
transaction costs in Jakarta Stock Exchange (JSX) using period before automation (May 1995). To match
closely with Bonser-Neal et al. (1999), we used period right after JSX introduced trading automation (JATS or
Jakarta Automated Trading System). We used period from May 1995 to March 2003. We found that transaction
costs in the automation period were larger than those reported by Bonser-Neal et al. (1999). Automation
did not seem to automatically reduce transaction costs as expected. We found that domestic investors had larger
price impact than foreign investors. Similar to previous finding, we found that trade difficulty had a positive
effect on price impacts. We also found transaction costs in crisis period were larger than those in normal period.
We also found that size had a negative relationship with price impacts. Our paper provided evidence of the
transaction costs in Indonesia market after the automated trading was introduced in Indonesia market.

Keywords


automated trading, crisis period, domestic investors, foreign investors, transaction cost

Full Text:

pdf

References


Avramov, D., Cheng, S., & Hameed, A. 2014. Time-Varying Momentum Payoffs and Illiquidity. Working Paper. Asian Finance Association (AsianFA) 2014.

Ball, R. & Finn, F.J. 1989. The Effect of Block Transactions on Share Price. Journal of Banking and Finance, 13(3): 397-419.

Berkowitz, S.A., Logue, D.E., & Noser, E.A. 1988. The Total Cost of Transactions on the NYSE. Journal of Finance, 43(1): 97-112.

Bonser-Neal, C., Linnan, D., & Neal, R. 1999. Emerging Market Transaction Costs: Evidence from Indonesia. Pacific-Basin Finance Journal, 7(9): 103-127.

Chan, L.K.C. & Lakonishok, J. 1993. Institutional Trades and Intraday Stock Price Behavior. Journal of Financial Economics, 33(2): 173-199.

Chang, R.P., Hanafi, M.M., & Rhee, S.G. 1999. Price Discovery Process on Regular and Cross Trade Markets: Empirical Evidence from the Jakarta Stock Exchange. Working Paper. University of Hawaii.

Chiyachantana, C.N., Jain, P.K., Jiang, C.X., & Wood, R. 2004. International Evidence on Institutional Trading Behavior and Price Impact. Journal of Finance, 59(7): 869-898.

Dasgupta, A., Prat, A. & Verardo, M. 2011. The Price Impact of Institutional Herding. Review of Financial Studies, 24(3): 892-925.

Domowitz, I., Glen, J., & Madhavan, A. 2001. Liquidity, Volatility, and Equity Trading Costs Across Countries and Over Time. International Finance, 4(20): 221-255.

Easley, D. & O’Hara, M. 1987. Price, Trade Size, and Information in Securities Markets. Journal of Financial Economics, 19(7): 69-90.

Goyenko, R.Y., Holden, C.W., & Trzcinka, C.A. 2009. Do Liquidity Measures Measure Liquidity? Journal of Financial Economics, 92(2): 153–181.

Frazzini, A., Israel, R., & Moskowitz, T.J. 2012. Trading Costs of Asset Pricing Anomalies. Working Paper. Fama-Miller.

Harris, L. & Gurel, E. 1986. Price and Volume Effects Associated with Changes in the S&P 500 List: New Evidence for the Existence of Price Pressures. The Journal of Finance, 41(4): 815-829.

Holthausen, R.W., Leftwich, R.W., & Mayers, D. 1987. The Effect of Large Block Transactions on Security Prices: A Cross Sectional Analysis. Journal of Financial Economics, 19(2): 237-267.

Holthausen, R.W., Leftwich, R.W., & Mayers, D. 1990. Large Block Transactions: The Speed of Response, and Temporary and Permanent Stock Price Effects. Journal of Financial Economics, 26(1): 71-95.

Huh, S.W. 2014. Price Impact and Asset Pricing. Journal of Financial Markets, 19(10): 1–38.

Keim, D.B. & Madhavan, A. 1996. The Upstairs Market for Large Block Transactions: Analysis and Measurement of Price Effects. Review of Financial Studies, 9(1): 1-36.

Kraus, A. & Stoll, H.R. 1972. Price Impacts of Block Trading on the New York Stock Exchange. Journal of Finance, 27(3): 569-588.

Lee, C.M.C. & Ready, M.J. 1991. Inferring Trade Direction from Intraday Data. Journal of Finance, 46(2): 733-747.

Mikkelson, W.H. & Partch, M.M. 1985. Stock Price Effects and Costs of Secondary Distribution. Journal of Financial Economics, 14(5): 165-194.

Moorman, T.C. 2014. An Empirical Investigation of Methods to Reduce Transaction Costs. Journal of Empirical Finance, 29(12): 230–246.

Odders-White, E.R. 2000. On the Occurrence and Consequences of Inaccurate Trade Classification. Journal of Financial Markets, 3(2): 205–332.

Perold, A. & Sirri, E.R. 1994. The Cost of International Equity Trading. Working Paper. Harvard Business School.

Scholes, M.S. 1972. The Market for Securities: Substitution versus Price Pressure and the Effect of Information on Share Prices. The Journal of Business, 45(2): 179-211.

Shleifer, A. 1986. Do Demand Curves for Stocks Slope Down? The Journal of Finance, 41(3): 579-590.

Stoll, H.R. & Whaley, R.E. 1983. Transactions Cost and the Small Firm Effect. Journal of Financial Economics, 12(1): 57-79.




DOI: https://doi.org/10.26905/jkdp.v19i1.829

Refbacks

  • There are currently no refbacks.


Bookmark and Share


Jurnal Keuangan dan Perbankan (Journal of Finance and Banking)

Diploma Program of Banking and Finance, Faculty of Economics and Business, University of Merdeka Malang

Published by University of Merdeka Malang

Mailing Address:
2nd floor Finance and Banking Building, Jl. Terusan Raya Dieng No. 57 Malang, East Java, Indonesia
Phone: -
Email: [email protected]

This work is licensed under a Creative
Commons Attribution-ShareAlike 4.0