Emerging market transaction costs: Evidence from Indonesia

Despite investor interest in emerging stock markets, relatively little is known about the cost of transacting on these markets. This paper uses transactions data to estimate the execution costs of trading on one emerging market, the Jakarta Stock Exchange (JSX) in Indonesia. We find that JSX execution costs appear surprisingly similar to those of non-U.S. developed markets. Factors influencing these costs include the difficulty of the trade, the size of the firm traded, and the broker executing the trade. We also find that trades initiated by foreigners have a much larger price impact than trades initiated by local investors.