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An empirical investigation of methods to reduce transaction costs

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  • Moorman, Theodore

Abstract

Among 37 methods to reduce transaction costs, we recursively choose the best method for next period's investment in each of three portfolio strategies: levered-momentum, zero-cost momentum, and the equally-weighted market. We identify a few of the best methods and offer a framework by which additional methods can be considered. Within our framework, the best methods recapture a substantial amount of wealth and significantly improve risk-adjusted performance, both economically and statistically. Security migration can present a barrier to transaction cost reduction, as improvements occur for zero-cost momentum portfolios invested in all stocks but not for decile-momentum portfolios.

Suggested Citation

  • Moorman, Theodore, 2014. "An empirical investigation of methods to reduce transaction costs," Journal of Empirical Finance, Elsevier, vol. 29(C), pages 230-246.
    • Handle: RePEc:eee:empfin:v:29:y:2014:i:c:p:230-246
    DOI: 10.1016/j.jempfin.2014.09.004
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    More about this item

    Keywords

    Transaction costs reduction; Portfolio performance; Optimization; No-trade region; Geometric distance;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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