Which of the following is a result of high transaction costs in a financial market?

High transaction costs in a financial market can significantly impact the willingness of individuals and institutions to participate in that market. When transaction costs are elevated—such as brokerage fees, commissions, and other costs associated with buying or selling financial assets—investors may find the costs prohibitively expensive, leading to a reduction in market activity.

Reduced participation occurs because potential buyers and sellers might choose to hold onto their assets rather than incur high costs to trade them. This lack of trading can decrease the overall volume of transactions in the market, potentially leading to less price discovery and a market that fails to accurately reflect the underlying economic conditions.

This reduction in participation can also lead to less competition and lower liquidity, which further exacerbates the situation. As fewer participants engage in the market, prices may become more volatile, and investors might face greater challenges when seeking to enter or exit positions efficiently. Thus, high transaction costs can deter active engagement in financial markets, leading to overall reduced market participation.