Bridge over ocean
14 January 2019 Financial Analysts Journal Volume 75, Issue 1

Comparing Cost-Mitigation Techniques

  1. Robert Novy-Marx
  2. Mihail Velikov

This article compares the efficacy of three common transaction-cost-mitigation techniques: limiting a strategy to cheap-to-trade securities, rebalancing a strategy less frequently, and “banding,” which imposes a higher hurdle for actively trading into a position than for maintaining an established position. All three strategies significantly reduce transaction costs, but the techniques that reduce turnover have a less negative impact on strategy gross performance than limiting trade to low-cost securities has. Banding is more effective than simply reducing rebalancing frequencies, because banding yields similar trading-cost reductions while maintaining a better exposure to the underlying signal used to select stocks.

Read the Complete Article in Financial Analysts Journal Financial Analysts Journal CFA Institute Member Content

We’re using cookies, but you can turn them off in Privacy Settings.  Otherwise, you are agreeing to our use of cookies.  Accepting cookies does not mean that we are collecting personal data. Learn more in our Privacy Policy.