Abstract
Measuring, controlling and minimising transaction and execution costs for institutional investors are becoming increasingly important. This paper discusses the issues involved and presents a theoretical model which minimises the expected cost of Block Trading. Transaction costs and Execution costs are fully defined and discussed. Unfortunately, the data necessary to analyse many questions of interest is very difficult or impossible to obtain.In reality, Execution costs are not directly observable. Therefore, many different measures exists, each with it's own advantages and disadvantages. Theoretically, execution costs can be measured via price impact functions. Some of the most important issues concerning block trading is market capitalisation, volume traded, speed of execution, the inventory levels, the trader involved and the firm involved. All of the issues are discussed from a general perspective, therefore it is not discussed from the view of one particular market.
Published Version
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