Abstract
Recently we have seen a tremendous growth in the use of electronic brokerages (e-brokerages) for on-line investing (Fortune 1998; Gomez et al., 1996). The number of e-brokerages has increased from 12 in 1994 to over 60 today. These e-brokerages claim to have timely order execution and guaranteed execution prices at a very low cost to the investor. The low cost is a result of electronic processes replacing expensive human processes. It is, however, not clear what percentage of cost savings is a result of the automation of the order-taking process. E-brokerages may be relying on the perceptions and beliefs of the investor regarding the causality between automation, rapid transaction execution, and expected results. However, the process of trading may not be transparent enough to the investors. They cannot be sure that they are getting the best deal and yet, are willing to pay a commission to the e-brokerage for mediating in the trading process. This value that the investor attaches to the e-brokerage services has to be studied and contrasted with traditional brokerages. As a first step towards this goal, we attempt to determine the correlation between commissions, timeliness and best deals for the investor using some empirical data. We use extant theories from economics, specifically from transaction cost economics, to provide some insights into the impact and use of electronic brokerages. In the next section, we provide the research expectations and hypotheses. The third section contains the results derived from preliminary empirical data and a discussion of these findings in view of the research expectations.
Recommended Citation
Abramowitz, Dave; Konana, Prabhudev; and Menon, Nirup, "Financial Electronic Brokerages: A Transaction Cost Perspective" (1998). AMCIS 1998 Proceedings. 90.
https://aisel.aisnet.org/amcis1998/90