Ilias Filippou , Thomas A. Maurer , Luca Pezzo , Mark P. Taylor
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引用次数: 0
Abstract
Transaction costs have a first-order effect on the performance of currency portfolios. Proportional costs based on quoted bid–ask spread are relatively small, but when a fund is large, costs due to the trading volume price impact are sizable and quickly erode returns, leaving many popular strategies unprofitable. A mean–variance-transaction-cost optimized approach (MVTC) that accounts for costs in the optimization efficiently tackles the problem with only relatively minor negative implications on before-cost profitability. MVTC is robust even when the price impact of trading is severe. Finally, we introduce an accurate extrapolation approach to expand the sample of the realized Amihud measure of Ranaldo and Santucci de Magistris (2022) from 12 to 26 currencies and from 2012 back in time to 1986.
期刊介绍:
The Journal of Financial Economics provides a specialized forum for the publication of research in the area of financial economics and the theory of the firm, placing primary emphasis on the highest quality analytical, empirical, and clinical contributions in the following major areas: capital markets, financial institutions, corporate finance, corporate governance, and the economics of organizations.