Abstract
The analysis of the price impact and spread is a challenging task due to various endogeneity issues and data limitations. To get around these problems, I develop a new methodology for estimating the parameters of trading costs and apply it to a unique data set of portfolio transition trades. I provide the estimates of the price impact and the effective spread in traditional markets as well as in internal and external crossing networks for a period 2001 through 2005. I document a number of new empirical facts about how these estimates differs for various trading venues and how they relate to various stock and trading characteristics. For instance, I find that the price impact increases with the dollar trading volume and with the volatility, where as the effective spread decreases with these characteristics. The documented increase of the price impact with the dollar trading volume is counterintuitive and not easily explained within the existing market microstructure models. I outline potential explanations that might underly these patterns.
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