This paper investigates the market reaction to short sales on an intraday basis in a market setting where short sales are transparent immediately following execution. We find a mean reassessment of stock value following short sales of up to Ϫ0.20 percent with adverse information impounded within fifteen minutes or twenty trades. Short sales executed near the end of the financial year and those related to arbitrage and hedging activities are associated with a smaller price reaction; trades near information events precipitate larger price reactions. The evidence is generally weaker for short sales executed using limit orders relative to market orders.

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Prior research into the cost of trading on the Australian Stock Exchange has identified brokerage fees and the bid‐ask spread as significant elements of total transaction costs. While an enormous volume of research has examined the determinants of spreads in US markets, no work has so far addressed the issue for the Australian market‐place. Given the importance of spreads as a transaction cost, this work redresses this imbalance and at the same time provides evidence on whether alternative market structures underlying different exchanges give rise to differences in the determinants of spreads. Using prior US research as our benchmark, our results suggest that notwithstanding microstructure differences between the Australian and US exchanges, there are three fundamental determinants of spreads that transcend differences in the market‐places. These are the level of trading activity, price volatility and stock price levels. Together these three factors account for up to 94% of the total cross‐sectional variation in percentage bid ask spreads on the ASX.

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During 1999 and 2000, three major futures exchanges transferred trading in stock index futures from open outcry to electronic markets: the London International Financial Futures and Options Exchange (LIFFE); the Sydney Futures Exchange (SFE); and the Hong Kong Futures Exchange (HKFE). These changes provide unique natural experiments to compare relative bid‐ask spreads of open outcry vs. electronically traded markets. This paper provides evidence of a decrease in bid‐ask spreads following the introduction of electronic trading, after controlling for changes in price volatility and trading volume. This provides support for the proposition that electronic trading can facilitate higher levels of liquidity and lower transaction costs relative to floor traded markets. However, bid‐ask spreads are more sensitive to price volatility in electronically traded markets, suggesting that the performance of electronic trading systems deteriorates during periods of information arrival. © 2004 Wiley Periodicals, Inc. Jrl Fut Mark 24:675–696, 2004