Abstract

http://ssrn.com/abstract=2294498
 
 

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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

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Date posted: February 19, 2014 ; Last revised: March 28, 2014

Suggested Citation

Frazzini, Andrea and Israel, Ronen and Moskowitz, Tobias J., Trading Costs of Asset Pricing Anomalies (December 5, 2012). Fama-Miller Working Paper; Chicago Booth Research Paper No. 14-05. Available at SSRN: http://ssrn.com/abstract=2294498

Contact Information

Andrea Frazzini
AQR Capital Management, LLC ( email )
Two Greenwich Plaza, 3rd Floor
Greenwich, CT 06830
United States
203-742-3894 (Phone)
203-742-3394 (Fax)
HOME PAGE: http://www.econ.yale.edu/~af227/
Ronen Israel
AQR Capital Management, LLC ( email )
Greenwich, CT
United States
Tobias J. Moskowitz (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-2757 (Phone)
773-702-0458 (Fax)
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