Transaction Cost Analysis A-Z

Transaction Cost Analysis A-Z — November 2008

VI. A New Framework: the EBEX Indicators

Figure 26: Distribution of absolute EBEX by order size

Figure 27: Distribution of orders by broker

0 100 200 300 400 500 600 700 800 900

10 15

13.88%

0 5

1

Percent

5.81%

10 15

3.96%

3.96%

0 5

7.77%

2

12.83%

Percent

6.22%

10 15

3.86%

3.31% 4.16%

14.29%

Number of orders 4.91%

0 5

3

Percent

7.22%

6.47%

10 15

Order size category

Broker

0 5

4

Percent

Size category

1 2 3

4 5

10 15

0 5

4

Percent

0 0.2 0.4 0.6 0.8 0.9

Figure 28 presents the empirical distribution of absolute EBEX by broker. Based on the median EBEX, we can directly conclude that broker 1 offers a higher quality of execution than broker 2 or broker 3. Broker 1 also appears to be more consistent than the two others (standard deviation of 0.31 instead of 0.35 or 0.33).

Absolute EBEX

(b) Broker performance In our sample, more than ten different brokers are identified but three of them deal with more than 50% of the orders. For convenience, we report here the results for these three brokers only. In order to preserve anonymity, we will name them broker 1, broker 2 and broker 3. Figure 27 exhibits for each of them the number of trades completed as well as information about their size.

Figure 28: Distribution of absolute EBEX by broker

Statistics Mean

0.519

12 15

Median 0.550 Std Deviation 0.312

0 3 6 9

1

Percent

Statistics Mean

12 15

0.461

Median 0.442 Std Deviation 0.358

0 3 6 9

2

Percent

Broker

Statistics Mean

0.508

Median 0.496 Std Deviation 0.331

12 15

0 3 6 9

3

Percent

0 0.2 0.4 0.6 0.8 1

Absolute EBEX

82

An EDHEC Risk and Asset Management Research Centre Publication