A Transaction-Cost Perspective on the Multitude of Firm Characteristics

A Transaction-Cost Perspective on the Multitude of Firm Characteristics

We investigate how transaction costs change the number of characteristics that are jointly significant for an investor’s optimal portfolio and, hence, how they change the dimension of the cross-section of stock returns. We find that transaction costs increase the number of significant characteristic...

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Veröffentlicht in:The Review of financial studies 2020-05, Vol.33 (5), p.2180-2222
Hauptverfasser: DeMiguel, Victor, Martín-Utrera, Alberto, Nogales, Francisco J., Uppal, Raman
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Sprache:eng
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1980-2014
Portfolio-Management
Transaktionskosten
USA
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creator DeMiguel, Victor
Martín-Utrera, Alberto
Nogales, Francisco J.
Uppal, Raman
description We investigate how transaction costs change the number of characteristics that are jointly significant for an investor’s optimal portfolio and, hence, how they change the dimension of the cross-section of stock returns. We find that transaction costs increase the number of significant characteristics from 6 to 15. The explanation is that, as we show theoretically and empirically, combining characteristics reduces transaction costs because the trades in the underlying stocks required to rebalance different characteristics often cancel out. Thus, transaction costs provide an economic rationale for considering a larger number of characteristics than that in prominent asset-pricing models.
doi_str_mv 10.1093/rfs/hhz085
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source Business Source Complete; Jstor Complete Legacy; Oxford University Press Journals All Titles (1996-Current)
subjects 1980-2014
Portfolio-Management
Transaktionskosten
USA
title A Transaction-Cost Perspective on the Multitude of Firm Characteristics
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