Quantitative Research

Brown Bag Series: Trading Implementation Costs

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Abstract. In this Brown Bag seminar we review a paper by Frazzini, Isreal, & Moskowitz (2012). The authors use a proprietory database that contains trading information from a large institutional investor and covers the time period of 1998 to 2012. The authors 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. They are able to demonstrate that even after accounting for the trading costs and price impact, the value and momentum anomalies result in viable trading strategies. The authors present an optimization framework to further minimize the transaction costs by reducing the turnover in the portfolio.

This research is of interest for Envestnet | PMC in the light of our development of Factor Enhanced Portfolios that are built on value and momentum anomaly principles.

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