Rights statement: This is a pre-copy-editing, author-produced PDF of an article accepted for publication in The Review of Financial Studies following peer review. The definitive publisher-authenticated version Victor DeMiguel, Alberto Martín-Utrera, Francisco J Nogales, Raman Uppal, A Transaction-Cost Perspective on the Multitude of Firm Characteristics, The Review of Financial Studies, Volume 33, Issue 5, May 2020, Pages 2180–2222 is available online at: https://academic.oup.com/rfs/article-abstract/33/5/2180/5821387
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Research output: Contribution to Journal/Magazine › Journal article › peer-review
Research output: Contribution to Journal/Magazine › Journal article › peer-review
}
TY - JOUR
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.
N1 - This is a pre-copy-editing, author-produced PDF of an article accepted for publication in The Review of Financial Studies following peer review. The definitive publisher-authenticated version Victor DeMiguel, Alberto Martín-Utrera, Francisco J Nogales, Raman Uppal, A Transaction-Cost Perspective on the Multitude of Firm Characteristics, The Review of Financial Studies, Volume 33, Issue 5, May 2020, Pages 2180–2222 is available online at: https://academic.oup.com/rfs/article-abstract/33/5/2180/5821387
PY - 2020/5/1
Y1 - 2020/5/1
N2 - We investigate how transaction costs change the number of characteristics that are jointly significant for an investor’s optimal portfolio, and hence, how they change the dimension of 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 characteristics that are jointly significant for an investor’s optimal portfolio, and hence, how they change the dimension of 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.
U2 - 10.1093/rfs/hhz085
DO - 10.1093/rfs/hhz085
M3 - Journal article
VL - 33
SP - 2180
EP - 2222
JO - Review of Financial Studies
JF - Review of Financial Studies
SN - 0893-9454
IS - 5
ER -