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Question of the Week - July 5th 2016

How do costs compare between small and large cap stocks in developed and emerging Asia?

 

Chart 1: Quarterly Transaction Costs in Developed Asia 

 

Chart 2: Quarterly Transaction Costs in Emerging Asia 

  • Small cap stocks present a challenge for traders who are often asked to trade large order sizes of relatively illiquid or volatile stocks. We examine trading cost trends for small and large cap stocks in Developed and Emerging Asian markets to contextualize expected trading costs.
  • The average cost to implement an investment decision for small cap stocks (round-trip) was over 150bps for developed Asia and over 225bps for emerging Asia in Q4 2015.
  • Small cap stocks are more than twice as expensive as large cap stocks for developed Asian markets and over three times as expensive for Emerging Asia.
  • A common misconception for small cap stocks is that a comparative transaction cost universe does not exist. ITG captured trading data for 114 clients making up over 450,000 distinct orders for small cap stocks within developed Asia in Q4 2015.

 

Transaction costs are based on ITG’s Peer Group Database, which contains order-level information from approximately 180 buy-side institutions. Implementation shortfall costs are measured relative to the release to the desk and are expressed in basis points. Developed Asia includes AU, JP and HK while Emerging Asia includes PH, TW, TH, ID, and CN. Large cap stocks are defined with an average market capitalization > 5 billion while small cap stocks are defined with an average market capitalization < 1billion.

 

Refer to ITG Peer Analytics for information on available ITG Peer Group Database based analytics.

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