Working paper, draft available on request
Brokerage Commissions and Trading Volume: Lessons from the 20th Century
Abstract. We ask how brokerage commissions affect trading activity. Estimating this causal effect is difficult because commissions are typically endogenous to the market. We turn to the pre-1976 era, when the New York Stock Exchange set and repeatedly revised minimum commission schedules, with commission rates a deterministic function of a stock’s price. This institutional feature delivers two complementary identification strategies. First, we exploit discontinuities in the price-based commission schedule in a regression kink design: higher commission rates raise trading volume, with a 1% increase in commissions increasing volume by approximately between 0.15% and 0.40%. Second, we exploit discrete changes in the schedule in a difference-in-differences design around rule revisions: trading volume declines in advance of new commission rules and then increases by 0.11–0.14% upon implementation. Both designs point to economically meaningful increases in trading activity, concentrated in more volatile stocks. We rationalize these findings with a mechanism in which fixed minimum commission schedules facilitate anti-competitive brokerage behavior: by limiting price competition, they increase the incentives and scope for brokers to steer naïve investors toward high-commission stocks, amplifying speculative trading precisely where volatility is highest.
Keywords: brokerage commissions, trading costs, trading volume, fixed commissions, NYSE, May Day 1975, market microstructure, broker incentives, volatility.
JEL codes: G11, G12, G17.
In brief
When the New York Stock Exchange set brokerage commissions, higher commissions led to more trading, not less.
Before commissions were deregulated in 1975, NYSE minimum commissions were a fixed function of a stock’s price, with kinks in the schedule and periodic revisions. Exploiting both, the paper finds that a 1% increase in commissions raised trading volume by roughly 0.15% to 0.40%, with effects concentrated in more volatile stocks. The authors attribute this to brokers: fixed schedules limited price competition and gave brokers the incentive and room to steer naïve investors toward high-commission stocks.
| Panel A. Design | ||
|---|---|---|
| Question | How do brokerage commissions affect trading activity? | |
| Setting | NYSE minimum commission schedules before deregulation in 1975, set as a function of stock price | |
| Data | Historical NYSE commission schedules and stock trading volume | |
| Method | Regression kink design at schedule kinks; difference-in-differences around schedule revisions | |
| Panel B. Reported effects | ||
| Trading volume response to a 1% rise in commissions | +0.15% to 0.40% | |
| Volume around schedule revisions | Falls before new rules, rises 0.11–0.14% on implementation | |
| Where effects concentrate | More volatile stocks | |
| Mechanism | Fixed schedules let brokers steer naïve investors toward high-commission stocks | |
Summarized from the paper. See the paper for exact estimates and specifications.
Read and cite
The draft is not yet posted. Email for a copy.
Fedyk, Valeria, and Rawley Z. Heimer. “Brokerage Commissions and Trading Volume: Lessons from the 20th Century.” Working paper.
@unpublished{heimer2026brokerage,
author = {Fedyk, Valeria and Heimer, Rawley Z.},
title = {Brokerage Commissions and Trading Volume: Lessons from the 20th Century},
note = {Working paper},
year = {2026},
url = {https://rawleyheimer.com/papers/brokerage-commissions-trading-volume.html}
}
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