CFA Institute
January 07, 2020
Shaping the investment industry for the greater good.

Comparing Cost-Mitigation Techniques

This article compares the efficacy of three common transaction-cost-mitigation techniques: limiting a strategy to cheap-to-trade securities, rebalancing a strategy less frequently, and “banding,” which imposes a higher hurdle for actively trading into a position than for maintaining an established position. All three strategies significantly reduce transaction costs, but the techniques that reduce turnover have a less negative impact on strategy gross performance than limiting trade to low-cost securities has. Banding is more effective than simply reducing rebalancing frequencies, because banding yields similar trading-cost reductions while maintaining a better exposure to the underlying signal used to select stocks.

This article is winner of the  Financial Analysts Journal  Graham and Dodd Awards of Excellence, Scroll Award 2019.

Click here to read the full article. 

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