Global equity trading costs are impacted by certain factors like volatility and prevailing liquidity in the market. These two factors also impact the execution costs involved in trading activities. The portfolio manager is responsible for designing the underlying strategy pertaining to investments, whose appropriateness is reflected in the investment performance of the company.
It also reflects the costs incurred in the implementation of the objectives. It has been observed that cost of executing the strategies is more outside United States of America.
It is very essential to ascertain the global equity trading costs.
Variations in global equity trading costs:
There are few factors, which impact the trading costs. These may include market liquidity as well as return liquidity. These factors also determine the cost of execution.
Effects of variation in parameters:
An alteration in volatility impacts realized returns by influencing costs. Not only that volatility changes also affect the trading activities of a portfolio manager. Variations in liquidity as well as trading costs in markets play a vital role in international competition pertaining to order flow. These imply the merits of the different designs on, which the market functions.
Facts about global equity trading costs:
Trading costs are comparatively higher in those markets, which are emerging. Market capitalization is inversely related to trading costs. However, costs have a positive co relation between volatility.
Studies conducted on global equity trading costs indicated the following facts.
Lower trading costs were related to improved liquidity, thereby enhancing trading activities.
It was found that turnover is not very susceptible to trading costs in the emerging economies. The reason being in emerging markets, trade volume is impacted by factors like privatization. So sensitivity to costs is minimum.
Even though (higher) volatility is responsible for stimulating trading having periods, which are short, the effect is not big. This indicates that it is not the geographic boundary, which impacts trading activities but it is primarily impacted by market development.