Christiane Goodfellow

How Do Trading Costs Vary Across the Day? A Note on the Innovative XLM Measure for Small Caps at the Frankfurt Stock Exchange

This article provides empirical evidence on the intraday pattern of trading costs for German small-cap stocks in the electronic trading system Xetra at the Frankfurt Stock Exchange. Theoretical papers draw ambiguous conclusions as to whether trading costs should increase or decrease with concentrated liquidity, and only very limited empirical evidence is available on intraday execution costs for stock trading in Germany. The authors investigate the XLM variable, which is a more comprehensive measure of trading costs than conventional indicators, such as the bid–ask spread or trading volume. The empirical evidence for the TecDAX stocks under investigation suggests a reverse J-shaped intraday profile for execution costs. Thus, trading is most expensive in the first 30 minutes after Xetra opens, and it is cheapest at the time when the NYSE starts trading. The authors conclude that cross-border integration of stock exchanges fosters market quality.

Forestalling Floor Closure: Evidence from a Natural Experiment on the German Stock Market

This article contributes to the debate about the relative qualities of floor and electronic trading systems by analysing the effects of bringing forward the Xetra closing time from 8.00 pm to 5.30 pm in November 2003, while the Frankfurt floor remains open until 8.00 pm. This natural experiment provides a ‘cleaner’ institutional setting than in Venkataraman (2001), as it enables us to investigate trading quality on both platforms for the same stocks in the same country before and after the event. The empirical evidence suggests that primarily institutional investors trading in large stocks transfer to the floor when Xetra closes earlier. It appears that investors remain with Xetra for informed trading though.