Question of the Week - May 23rd 2016

How have market conditions and institutional trading changed for small cap stocks?


Chart 1: Spread and Volatility for Russell 2000 Stocks 


Chart 2: ITG Peer Universe Net Flow and Implementation Shortfall Costs for Small Cap Stocks  


  • 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 trends in market conditions that influence costs for these stocks as well as ITG Peer Group Universe trading patterns and realized costs to highlight changes in small cap trading.
  • The first chart shows spread and volatility conditions for Russell 2000 stocks over the past two years. Spread and volatility are up in the second half of 2015 compared to the prior two quarters, both factors that increase difficulty of trading.
  • The second chart shows quarterly net flows (buy value – sell value) captured in the ITG Peer Group Database along with average realized implementation shortfall costs. Net flows have been consistently positive since Q2 2014 though the overall value is decreasing. We note an increase in realized costs in 2H 2015 coinciding with increased spread and volatility.


Transaction costs are based on ITG 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. Small cap stocks are defined as those with market cap between $150M and $500M. Volatility and spread values were equally weighted across Russell 2000 constituents.


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

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