Transaction size and effective spread: An informational relationship

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Conference Paper

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Henker, T., Kohn, R., Xia, Y., & Feldman, D. (2008). Transaction size and effective spread: An informational relationship. Paper presented at the 21st Australasian Finance and Banking Conference, 16-18 December, 2008, Sydney, Australia.

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The relationship between quantity traded and transaction costs has been one of the main focuses among financial scholars and practitioners. The purpose of this thesis is to investigate the informational relationship between these variables.Following insights and results of Milgrom (1981), Feldman (2004), and Feldman and Winer (2004), we use New York Stock Exchange (NYSE) data and kernel estimation methods to construct the distribution of one variable conditional on the other. Then, we study the information in these conditional distributions: the extent to which they are ordered by first order stochastic dominance (FOSD) and by the monotone likelihood ratio property (MLRP).