Trading with Zero Commission: An event study on the impact of zero commission trading
Abstract: Online trading has created a less controlled environment where investors have to rely on their own capabilities. The new technology has lead to excessive trading, higher volatility and excessive risk taking decreasing investor returns. This paper seeks to study the effects of an online broker scheme offering certain shares to be traded with zero commission over a specific period of time. An event study is conducted in order to determine the effects of zero commissions on investor returns using the Cumulative Average Abnormal Return measure. The main findings are that even though 50% of the shares in the sample are subject to increased liquidity the study finds no significant abnormal returns in relation to zero commission trading.
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