The Comparison of T rading Costs between Two Markets: KOSPI and KOSDAQ

We apply the pair sample method of Huang and Stoll (1996) to the Korea Exchange (KRX) so as to compare the trading costs of KOSPI and KOSDAQ stocks. The Korea Exchange have two trading places for listed stocks, which are KOSPI vs KOSDAQ, with the same trading mechanisms, i.e., the order-driven trading mechanism. Provided that we follow the pair sample method of Huang and Stoll (1996), we expect similar trading costs between KOSPI and KOSDAQ. One reason for this is that Huang and Stoll (1996) presumes that only trading mechanism under their pair sample does affect the difference in trading costs. Another reason is that KOSPI and KOSDAQ have the same trading mechanism. We found out that percent price impact costs are the same between KOSPI and KOSDAQ. Meanwhile, percent quoted and realized spreads show difference between KOSPI and KOSDAQ. In a further investigation of the intraday 30-minute time-interval trading costs, we found out that the average percent price impact costs were similar between KOSPI and KOSDAQ, while median percent price impact costs were different.