Research
Execution Cost Research
Execution costs are one of the most studied problems in market microstructure. This page covers what the academic and practitioner literature says and why we think it matters for anyone working with financial data.
01
What Research Shows About Execution Costs
- Academic work consistently finds bid-ask spread is the dominant component of execution cost for retail order flow.
- Time of day has a predictable effect on spread width — intraday spread curves are well documented in market microstructure literature.
- Kyle (1985) introduced the price impact coefficient that bears his name — it measures how much prices move per unit of signed order flow.
- Amihud (2002) proposed an illiquidity ratio based on price movement per dollar of volume — widely used as a liquidity proxy.
- VPIN (Easley et al 2012) introduced a toxicity measure based on volume imbalance between buyer and seller initiated flow.
02
What Practitioners Find
- Systematic traders consistently find realized returns below backtest projections — execution friction is a primary cause.
- Execution costs compound across trades — a small per-trade cost becomes significant at scale.
- Fill quality varies predictably by time of day, volatility regime, and liquidity conditions.
- Most backtesting platforms assume mid-fill — this systematically overstates edge.
03
Contact
Questions about execution cost research or the data behind our products are welcome.