The effective cost of trading is usually estimated from transaction-level data. This study proposes a Gibbs estimate that is based on daily closing prices. In a validation sample, the daily Gibbs estimate achieves a correlation of 0.965 with the transaction-level estimate. When the Gibbs estimates are incorporated into asset pricing specifications over a long historical sample (1926 to 2006), the results suggest that effective cost (as a characteristic) is positively related to stock returns. The relation is strongest in January, but it appears to be distinct from size effects. Copyright (c) 2009 The American Finance Association.
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Volume (Year): 64 (2009) Issue (Month): 3 (06) Pages: 1445-1477 Download reference. The following formats are available: HTML
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