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Stock Market Liquidity and the Trading Costs of Asset Pricing Anomalies

Brière, Marie; Lehalle, Charles-Albert; Nefedova, Tamara; Raboun, Amine (2019), Stock Market Liquidity and the Trading Costs of Asset Pricing Anomalies. https://basepub.dauphine.fr/handle/123456789/19772

Type
Document de travail / Working paper
External document link
https://ssrn.com/abstract=3380239
Date
2019
Publisher
SSRN Working Paper Series
Pages
34
Metadata
Show full item record
Author(s)
Brière, Marie
Laboratoire d'Economie de Dauphine [LEDa]
Lehalle, Charles-Albert cc
Capital Fund Management [CFM]
Nefedova, Tamara
Dauphine Recherches en Management [DRM]
Raboun, Amine
Laboratoire d'Economie de Dauphine [LEDa]
Abstract (EN)
Using a large database of the US institutional investors’ trades, this paper revisits the question of anomalies-based portfolio transaction costs. The real costs paid by large investors to implement the well-identified size, value, and momentum anomalies are lower than what has been documented in the previous studies. We find that the average investor pays an annual transaction cost of 17bps for size, 24bps for value, and 274bps for momentum. The three strategies generate statistically significant returns of respectively 5.21%, 2.79% and 2.77% after accounting for transaction costs. When the market impact is taken into account, transaction costs reduce substantially the profitability of the well-known anomalies for large portfolios, however, these anomalies remain profitable for average size portfolios. The break-even capacities in terms of fund size are $ 206 billion for size, $ 16.1 billion for value and $ 310 million for momentum.
Subjects / Keywords
Trading costs; Market Impact; Liquidity; Anomalies-based Investments
JEL
G11 - Portfolio Choice; Investment Decisions
D53 - Financial Markets
G14 - Information and Market Efficiency; Event Studies; Insider Trading

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