Presidential Address: Friction


  • Hans R. Stoll

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    • The Anne Marie and Thomas B. Walker Professor of Finance, Owen Graduate School of Management, Vanderbilt University, Nashville, Tennessee. I thank my colleagues at Vanderbilt for their helpful comments, with particular thanks to Roger Huang and Bill Christie for their suggestions. The assistance of Christoph Schenzler in carrying out the empirical work is gratefully acknowledged.


The sources of trading friction are studied, and simple, robust empirical measures of friction are provided. Seven distinct measures of trading friction are computed from transactions data for 1,706 NYSE/AMSE stocks and 2,184 Nasdaq stocks. The measures provide insights into the magnitude of trading costs, the importance of informational versus real frictions, and the role of market structure. The degree to which the various measures are associated with each other and with trading characteristics of stocks is examined.