A Taxonomy of Anomalies and Their Trading Costs

Robert Novy-Marx, Mihail Velikov

Research output: Contribution to journalArticle

87 Scopus citations

Abstract

We study the after-trading-cost performance of anomalies and the effectiveness of transaction cost mitigation techniques. Introducing a buy/hold spread, with more stringent requirements for establishing positions than for maintaining them, is the most effective cost mitigation technique. Most anomalies with less than 50% turnover per month generate significant net spreads when designed to mitigate transaction costs; few with higher turnover do. The extent to which new capital reduces strategy profitability is inversely related to turnover, and strategies based on size, value, and profitability have the greatest capacity to support new capital. Transaction costs always reduce strategy profitability, increasing data-snooping concerns.

Original languageEnglish (US)
Pages (from-to)104-147
Number of pages44
JournalReview of Financial Studies
Volume29
Issue number1
DOIs
StatePublished - Jan 1 2016

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics

Fingerprint Dive into the research topics of 'A Taxonomy of Anomalies and Their Trading Costs'. Together they form a unique fingerprint.

  • Cite this