Frazzini Israel and Moskowitz 2018
“Trading Costs of Asset Pricing Anomalies” by Andrea Frazzini, Ronen Israel and Tobias Moskowitz (first draft 2012; published 2018, Review of Asset Pricing Studies) measures real-world trading costs using over $1.05 trillion of live trades from a large institutional money manager (AQR Capital Management) across 21 developed equity markets, 1998-2013. Mean market impact is ~9-11 bp per trade — an order of magnitude smaller than quote-based (TAQ) estimates — because a sophisticated desk supplies rather than demands liquidity. Applying these costs to long-short factors, the authors conclude size, value and momentum remain implementable at very large fund sizes while short-term reversal does not. It appears in this vault as the optimistic anchor on realistic Transaction Costs and Slippage: real costs can be modest, but only with elite execution.
Connections
- Transaction Costs and Slippage — includes_costs, source: https://www.aqr.com/Insights/Research/Working-Paper/Trading-Costs-of-Asset-Pricing-Anomalies
- Patton and Weller 2017 — contradicts, reaches a far more pessimistic net-of-cost conclusion for typical funds, source: https://public.econ.duke.edu/~ap172/Patton_Weller_MF_31oct17.pdf
- Andrea Frazzini — proposes_model, source: https://www.aqr.com/Insights/Research/Working-Paper/Trading-Costs-of-Asset-Pricing-Anomalies
- Tobias Moskowitz — proposes_model, source: https://www.aqr.com/Insights/Research/Working-Paper/Trading-Costs-of-Asset-Pricing-Anomalies