Transaction Costs and Stock Market Behavior: Evidence from Thailand

Abstract

This study empirically examines the relationship between transaction costs, measured by brokerage fees from securities trading, and market activity in the Stock Exchange of Thailand, focusing on trading value, turnover ratio, and the volatility of daily returns. It is the first to analyze the effects of brokerage fees on trading value  disaggregated by three types of investors: local institutional investors, foreign investors, and local retail investors. Using monthly trading data from January 2013 to October 2022, the results reveal that higher transaction costs significantly reduce the overall average daily trading value. Local institutional investors are found to be sensitive to changes in brokerage fees over the long run, while foreign and local retail investors exhibit short-run sensitivity. Furthermore, an increase in transaction costs is associated with a reduction in the volatility of daily returns in the stock market over the long run.