How Trading Costs Affect Liquidity on Bucharest Stock Exchange?

Abstract

In recent years, the study of trading costs, is a leading research activity of the investors in the field of stock exchanges, and theorists. Currently, this intense attention paid to this area, provides a theoretical base and a set of useful tools, for studies that aim to analyze the measurement and estimation of transaction costs. The effective transaction costs are estimated from transaction-level trade and quote data. If you are an investor, you can see that transaction costs reduce the return of investments, and if the investors are rational, they will require a compensation for expected transactions costs. This paper present how trading costs affect liquidity on Bucharest Stock Exchange. Using intra-day data we find that transactions cost are a determinant factor for market liquidity and asset returns.