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COMMISSION COST STRUCTURE: SHIFTS AND SCALE ECONOMIES

COMMISSION COST STRUCTURE: SHIFTS AND SCALE ECONOMIES I. INTRODUCTION COMMISSION COSTS of trading common stocks are incorporated into various models of portfolio formation and revision. Brennan [4] found that fixed transactions costs alter the selection of securities with limited wealth levels. Smith [14] presents a set of rules for trading over- and under-priced securities, given commission costs; Francis and Archer [10] show the effect of transactions costs on the securities and capital market lines; Zabel [16], Chen [6] and Epps [9] show theoretically that transactions costs modify optimal consumption and portfolio decisions. Clearly, commission costs influence security returns, selection, and pricing, and the structure of transactions costs is a component in the formation of security portfolios. Commission costs are significant not only to portfolio managers and traders but also to economists studying securities and brokerage firms. Far from being the neglected subject observed by Demsetz [8] 11 years ago, commission costs are now common in realistic random walk and portfolio formation studies. This paper is an empirical study of commission cost structures for institutional traders, during the transition period from "fixed" to "negotiated" commission prices around May 1, 1975. The specific objectives of the research are two-fold: (1) to evaluate the effect of changing from http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Finance Wiley

COMMISSION COST STRUCTURE: SHIFTS AND SCALE ECONOMIES

The Journal of Finance , Volume 33 (2) – May 1, 1978

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References (11)

Publisher
Wiley
Copyright
1978 The American Finance Association
ISSN
0022-1082
eISSN
1540-6261
DOI
10.1111/j.1540-6261.1978.tb04862.x
Publisher site
See Article on Publisher Site

Abstract

I. INTRODUCTION COMMISSION COSTS of trading common stocks are incorporated into various models of portfolio formation and revision. Brennan [4] found that fixed transactions costs alter the selection of securities with limited wealth levels. Smith [14] presents a set of rules for trading over- and under-priced securities, given commission costs; Francis and Archer [10] show the effect of transactions costs on the securities and capital market lines; Zabel [16], Chen [6] and Epps [9] show theoretically that transactions costs modify optimal consumption and portfolio decisions. Clearly, commission costs influence security returns, selection, and pricing, and the structure of transactions costs is a component in the formation of security portfolios. Commission costs are significant not only to portfolio managers and traders but also to economists studying securities and brokerage firms. Far from being the neglected subject observed by Demsetz [8] 11 years ago, commission costs are now common in realistic random walk and portfolio formation studies. This paper is an empirical study of commission cost structures for institutional traders, during the transition period from "fixed" to "negotiated" commission prices around May 1, 1975. The specific objectives of the research are two-fold: (1) to evaluate the effect of changing from

Journal

The Journal of FinanceWiley

Published: May 1, 1978

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