The impact of trading mechanisms and stock characteristics on order processing and information costs: A panel GMM approach

My study provides a panel approach to quantify the impact of trading mechanisms and stock characteristics on spread components. Based on the two-way decomposition of Huang and Stoll (1997), a cross-sectional dimension is added. Arrelano and Bover's (1995) dynamic GMM procedure and the Helmert''s transformation allow controlling for company specific effects. In line with former research, I confirm higher order processing costs on the NASDAQ. My model identifies the reasons for higher information costs on dealer markets, namely lower market capitalization and less attention of financial analysts. Yet the trading mechanism itself is not responsible for higher information costs.