Transaction Cost Analysis A-Z

Transaction Cost Analysis A-Z — November 2008

VI. A New Framework: the EBEX Indicators

(a) Overall performance Figure 23 shows the empirical distribution of the absolute EBEX indicators computed for all the orders in our sample as well as some of the usual descriptive statistics. As the figure shows, the entire sample exhibits an average absolute EBEX of about 0.50, with a standard deviation of about 0.31. The median is about 0.52 and suggests relatively average overall execution since 50% of the orders have an absolute EBEX lower than 0.52.

orders whose size lies between one and five DAV; ]5;10] for orders whose size lies between five and ten DAV; and finally ]10; ] for orders whose size is larger than ten DAV. Figure 22 shows that the sample contains orders of every size, with a predominance of large and medium-sized orders.

Figure 22: Distribution of orders by size

1500

31.01%

1200

28.11%

Figure 23: Distribution of absolute EBEX for the entire order sample

900

19.06%

600

12

13.28%

Statistics Mean

0.501317 0.519203 0.244213 0.752985 0.314073

Median

Number of orders

8.55%

10

300

Lower Quartile Upper Quartile Std Deviation

8

0

]0; 0.5]

]1; 5]

]10; ]

]0.5; 1]

]5; 10]

6

Order size (in DAV)

Percent

4

(3) Results and interpretation Now that we have described the sample of orders, we can present the findings we obtain for our EBEX indicators. The objective here is to document both the transparency of the framework and the level of interpretation. We begin with an analysis of the overall quality of execution. In this case, orders can be aggregated at any level (direction, size, trend, etc.) and the interpretation of the absolute EBEX indicator is the most relevant. We then show the analysis done broker by broker. Here, interpreting the absolute EBEX with the directional EBEX as well as the $EBEX is relevant.

2

0

Absolute EBEX 0 0.15 0.3 0.45 0.6 0.75 0.9

Differences between buy (B) and sell (S) orders are shown in figure 24. As we may observe, the quality of execution looks slightly better for buy orders. Both the mean (0.52) and the median (0.54) scores are higher for these orders while standard deviation (0.31 instead of 0.32) is lower. Consistent with this result, the peak close to zero is also lower for buy orders: less than 10% against almost 13% for sell orders.

80

An EDHEC Risk and Asset Management Research Centre Publication