EconPapers    
Economics at your fingertips  
 

Retaining alpha: The effect of trade size and rebalancing frequency on FX strategy returns

Michael Melvin (), Wenqiang Pan and Petra Wikstrom

Journal of Financial Markets, 2020, vol. 51, issue C

Abstract: The literature on currency investing that incorporates transaction costs uses costs relevant for small trade sizes. Using the entire order book of the major electronic brokerages for FX, we compute sweep-to-fill costs for trades of different sizes and illustrate the reduction in post-cost returns as trade size increases. Researchers should consider trade size and frequency to create realistic forecasts of post-tcost returns to gauge the capacity of a strategy. We show how incorporating tcosts in the construction of a portfolio improves performance for both high and low frequency strategies and retains a larger portion of the alpha.

Keywords: Transaction costs; FX microstructure; Exchange rates; Portfolio construction (search for similar items in EconPapers)
JEL-codes: F31 G15 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1386418120300148
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Retaining Alpha: The Effect of Trade Size and Rebalancing Frequency on FX Strategy Returns (2020) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:51:y:2020:i:c:s1386418120300148

DOI: 10.1016/j.finmar.2020.100545

Access Statistics for this article

Journal of Financial Markets is currently edited by B. Lehmann, D. Seppi and A. Subrahmanyam

More articles in Journal of Financial Markets from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2021-12-23
Handle: RePEc:eee:finmar:v:51:y:2020:i:c:s1386418120300148