What you see is not what you get: The costs of trading market anomalies

Andrew Patton and Brian M. Weller

Journal of Financial Economics, 2020, vol. 137, issue 2, 515-549

Abstract: Is there a gap between the profitability of a trading strategy on paper and that which is achieved in practice? We answer this question by developing a general technique to measure the real-world implementation costs of financial market anomalies. Our method extends Fama-MacBeth regressions to compare the on-paper returns to factor exposures with those achieved by mutual funds. Unlike existing approaches, ours delivers estimates of all-in implementation costs without relying on parametric microstructure models or explicitly specified factor trading strategies. After accounting for implementation costs, typical mutual funds earn low returns to value and no returns to momentum.

Keywords: Trading costs; Performance evaluation; Mutual funds; Market efficiency (search for similar items in EconPapers)
JEL-codes: G12 G14 G23 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304405X20300453
Full text for ScienceDirect subscribers only

Related works:
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:jfinec:v:137:y:2020:i:2:p:515-549

DOI: 10.1016/j.jfineco.2020.02.012

Access Statistics for this article

Journal of Financial Economics is currently edited by G. William Schwert

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