A Taxonomy of Anomalies and Their Trading Costs

Robert Novy-Marx, Mihail Velikov

Research output: Contribution to journalArticle

77 Citations (Scopus)

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

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Profitability
Transaction costs
Turnover
Trading costs
Taxonomy
Anomaly
Mitigation
Data snooping

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics

Cite this

Novy-Marx, Robert ; Velikov, Mihail. / A Taxonomy of Anomalies and Their Trading Costs. In: Review of Financial Studies. 2016 ; Vol. 29, No. 1. pp. 104-147.
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A Taxonomy of Anomalies and Their Trading Costs. / Novy-Marx, Robert; Velikov, Mihail.

In: Review of Financial Studies, Vol. 29, No. 1, 01.01.2016, p. 104-147.

Research output: Contribution to journalArticle

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