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

Published

Journal Article

© 2020 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.

Full Text

Duke Authors

Cited Authors

  • Patton, AJ; Weller, BM

Published Date

  • August 1, 2020

Published In

Volume / Issue

  • 137 / 2

Start / End Page

  • 515 - 549

International Standard Serial Number (ISSN)

  • 0304-405X

Digital Object Identifier (DOI)

  • 10.1016/j.jfineco.2020.02.012

Citation Source

  • Scopus