TY - UNPB

T1 - A Transaction-Cost Perspective on the Multitude of Firm Characteristics

AU - Martin Utrera, Alberto

AU - DeMiguel, Victor

AU - Uppal, Raman

AU - Nogales, Francisco J.

PY - 2017/2/8

Y1 - 2017/2/8

N2 - We investigate how transaction costs change the number of firm-specific characteristics that are jointly significant for explaining the cross section of stock returns. We find that transaction costs increase the number of significant characteristics from six to 15. The explanation is that, as we show theoretically and empirically, combining characteristics reduces transaction costs because the trades in the underlying stocks required to rebalance different characteristics often cancel out. Thus, transaction costs provide an economic rationale for considering a larger number of characteristics than that in prominent asset-pricing models.

AB - We investigate how transaction costs change the number of firm-specific characteristics that are jointly significant for explaining the cross section of stock returns. We find that transaction costs increase the number of significant characteristics from six to 15. The explanation is that, as we show theoretically and empirically, combining characteristics reduces transaction costs because the trades in the underlying stocks required to rebalance different characteristics often cancel out. Thus, transaction costs provide an economic rationale for considering a larger number of characteristics than that in prominent asset-pricing models.

M3 - Working paper

BT - A Transaction-Cost Perspective on the Multitude of Firm Characteristics

ER -