Stock Market Liquidity and the Trading Costs of Asset Pricing Anomalies

34 Pages Posted: 28 May 2019

See all articles by Marie Briere

Marie Briere

Amundi Asset Management; Paris Dauphine University; Université Libre de Bruxelles

Charles‐Albert Lehalle

Capital Fund Management

Tamara Nefedova

Université Paris-Dauphine

Amine Raboun

Euronext Paris; Université Paris Dauphine

Date Written: April 24, 2019

Abstract

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.

Keywords: Trading Costs, Market Impact, Liquidity, Anomalies-based Investments

JEL Classification: G11, G14

Suggested Citation

Briere, Marie and Lehalle, Charles‐Albert and Nefedova, Tamara and Raboun, Amine, Stock Market Liquidity and the Trading Costs of Asset Pricing Anomalies (April 24, 2019). Available at SSRN: https://ssrn.com/abstract=3380239 or http://dx.doi.org/10.2139/ssrn.3380239

Marie Briere (Contact Author)

Amundi Asset Management ( email )

90 Boulevard Pasteur
Paris, 75015
France

Paris Dauphine University ( email )

Université Libre de Bruxelles ( email )

Brussels
Belgium

Charles‐Albert Lehalle

Capital Fund Management

23 rue de l'Université
Paris, 75007
France

Tamara Nefedova

Université Paris-Dauphine ( email )

Place du Maréchal de Tassigny
Paris, Cedex 16 75775
France

HOME PAGE: http://www.tamaranefedova.com

Amine Raboun

Euronext Paris ( email )

14 Place des Reflets
Courbevoie, 92400
France
0170482400 (Phone)

Université Paris Dauphine ( email )

Place du Maréchal de Tassigny
Paris, Cedex 16 75775
France

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