| This dissertation investigates the impact of market design on trading characteristics and execution costs using a comprehensive sample of institutional trading in ten major stock exchanges around the world. We conduct empirical tests by comparing institutional trading characteristics and execution costs on various exchanges settings (including the degree of competition among exchanges, the degree of reliance on market makers, the level of transparency, and the degree of automation).; This dissertation has the following main results. First, institutions' trading characteristics, such as trading aggressiveness, speed of order execution, and degree of order completion, vary significantly across different factors considered important determinants of institutional trading characteristics. These factors are firm characteristics (market capitalization), direction of decision (buy or sell orders), complexity of decision (size of the decision relative to the depth of the market), and difficulty of orders (worked versus nonworked orders). Furthermore, execution costs are larger for smaller firms, sell decisions, more complex decisions, and decisions spanning multiple days or brokers.; Second, we find evidence that centralized exchanges improve trading qualities. Institutional trading decisions are executed faster and with fewer brokers. In relation to institutional execution costs, price impact (commission) is economically and statistically significant lower for orders executed in centralized (fragmented) exchanges. Overall, total execution costs are higher in fragmented markets after controlling for factors known to be determinants of institution execution costs.; Third, we find that institutional trading characteristics are superior in exchanges with no designated market makers. Furthermore, institutions incur higher execution costs with presence of designated market makers.; Fourth, institutions have better executions in the high transparency exchanges but also incur higher execution costs. Our findings support the view that increasing level of transparency benefit market makers at the expense of liquidity traders and informed traders with immediate liquidity needs.; Finally, we present evidence on the comparison of automated execution and human intervention exchanges. While there is a small difference in trading characteristics, our analysis suggests that exchange with human intervention is superior in accommodating large trades by institutions with lower execution costs. |
