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Post by AQR on Mar 31, 2014 23:38:00 GMT 4
Trading Costs of Asset Pricing Anomalies Andrea Frazzini AQR Capital Management, LLC Ronen Israel AQR Capital Management, LLC Tobias J. Moskowitz University of Chicago - Booth School of Business December 5, 2012 Fama-Miller Working Paper Chicago Booth Research Paper No. 14-05 Abstract: Using nearly a trillion dollars of live trading data from a large institutional money manager across 19 developed equity markets over the period 1998 to 2011, we measure the real-world transactions costs and price impact function facing an arbitrageur and apply them to size, value, momentum, and short-term reversal strategies. We find that actual trading costs are less than a tenth as large as, and therefore the potential scale of these strategies is more than an order of magnitude larger than, previous studies suggest. Furthermore, strategies designed to reduce transactions costs can increase net returns and capacity substantially, without incurring significant style drift. Results vary across styles, with value and momentum being more scalable than size, and short-term reversals being the most constrained by trading costs. We conclude that the main anomalies to standard asset pricing models are robust, implementable, and sizeable. Number of Pages in PDF File: 68 see: papers.ssrn.com/sol3/papers.cfm?abstract_id=2294498
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