Paper profits or real money? Trading costs and stock market anomalies in country ETFs

Zaremba, Adam ; Andreu Sánchez, Laura (Universidad de Zaragoza)

Resumen: Are the quantitative equity strategies for country selection robust to implementation costs? To answer this question, we conduct a comprehensive examination of the country-level strategies so far. We review, classify, and replicate 120 equity anomalies within a sample of 42 country equity indices for the years 1996–2017. Next, using ETF price and spread data, we test the effect of real-life conditions and trading costs on the anomaly performance. We also examine three cost-mitigation strategies: infrequent rebalancing, capitalization-based weighting, and focus on low-cost securities. We find that 46% of the long-only monthly rebalanced anomaly portfolios display significant alphas, concentrated strongly among strategies based on value, momentum, and liquidity. The effect of transaction costs proves largely lethal to returns, leaving only a handful of anomalies profitable. Less frequent rebalancing (annually) helps to regain the effectiveness of the strategies, increasing the monthly alphas on the long-only anomaly portfolios to 0.44% on average.

Idioma: Inglés

DOI: 10.1016/j.irfa.2018.01.007

Año: 2018

Publicado en: International review of financial analysis 56 (2018), 181-192
ISSN: 1057-5219

Factor impacto JCR: 1.693 (2018)

Categ. JCR: BUSINESS, FINANCE rank: 45 / 103 = 0.437 (2018) - Q2 - T2

Factor impacto SCIMAGO: 0.782 - Finance (Q1) - Economics and Econometrics (Q1)

Tipo y forma: Artículo (PostPrint)

Área (Departamento): Área Economía Finan. y Contab. (Dpto. Contabilidad y Finanzas)