Trading Costs of Asset Pricing Anomalies

Frazzini, Andrea; Israel, Ronen; Moskowitz, Tobias J.

doi:10.2139/ssrn.2294498

Cited by 187 publications

(153 citation statements)

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“…The ratio declines from 0.66 in the pre-decimal period to 0.24 in the post-decimal period, i.e., by about two-thirds. This 14 Our post-decimalization results on attenuation in anomaly profits complement those in Israel and Moskowitz (2012) as well as Frazzini, Israel, and Moskowitz (2012); however, our study is not directly comparable to these papers, because they focus primarily on size, value, and momentum and do not explicitly consider the post-decimalization period, whereas we consider twelve anomalies, and also focus on dramatic declines in trading costs and increases in trading activity that have occurred in the more recent years.…”

Section: Decimalizationmentioning

confidence: 75%

Have capital market anomalies attenuated in the recent era of high liquidity and trading activity?

Chordia

Subrahmanyam

Tong

2014

Journal of Accounting and Economics

443

179

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We are grateful to S.P. Kothari (the editor) and two anonymous referees for insightful and constructive feedback. We acknowledge and appreciate financial assistance from the Fink Center for Investment Research at UCLA. We also thank Lieven Baele, Michael AbstractHave Capital Market Anomalies Attenuated in the Recent Era of High Liquidity and Trading Activity?We examine whether the recent regime of increased liquidity and trading activity is associated with attenuation of prominent equity return anomalies due to increased arbitrage.We find that the majority of the anomalies have attenuated, and the average returns from a portfolio strategy based on prominent anomalies have approximately halved after decimalization. We provide evidence that hedge fund assets under management, short interest and aggregate share turnover have led to the decline in anomaly-based trading strategy profits in recent years. Overall, our work indicates that policies to stimulate liquidity and ameliorate trading costs improve capital market efficiency.

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Section: Decimalizationmentioning

confidence: 75%

Have capital market anomalies attenuated in the recent era of high liquidity and trading activity?

Chordia

Subrahmanyam

Tong

2014

Journal of Accounting and Economics

443

179

View full text Add to dashboard Cite

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“…The transaction cost estimates are from Frazzini, Israel, and Moskowitz (2013), who estimated market impact functions in a sample of a trillion dollars of live trading data from a large institutional money manager. Their estimates provide predicted transaction costs as a function of the time period, aggregate volatility, idiosyncratic volatility, daily volume, size of the stock, and the amount traded.…”

Section: Robustness Analysismentioning

confidence: 99%

“…To compute predicted transaction costs for each stock, we used the coefficients from column 4 of Table 4 in Frazzini, Israel, and Moskowitz (2013). Panel A reports the results for all stocks, and Panel B reports the results for the largest 1,000 stocks.…”

Section: Notesmentioning

confidence: 99%

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Low-Risk Investing without Industry Bets

Asness

Frazzini²,

Pedersen

2014

Financial Analysts Journal

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“…Frazzini et al (2015) reported monthly turnover over 1998-2013 for the long-short SMB, HML, and MOM factor portfolios and an equally weighted composite factor portfolio of 66%, 71%, 122%, and 65%, respectively. For longonly versions of the factor portfolios (comparable to the country-based portfolios reported in Tables 2 and 3), if we assume that the turnover is half the reported numbers, the annual turnover becomes 396%, 426%, 732%, and 390%, respectively.…”

Section: Editor's Notementioning

confidence: 99%