Importance of transaction costs for asset allocation in foreign exchange markets☆

• 成果类型: Article
• 署名作者: Filippou, Ilias; Maurer, Thomas A.; Pezzo, Luca; Taylor, Mark P.
• 署名单位: State University System of Florida; Florida State University; University of Hong Kong; University of Louisiana System; University of New Orleans; Washington University (WUSTL)
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2024.103886
• 发表日期: 2024
• 关键词: transaction costs; Price impact; Realized Amihud; MEAN-VARIANCE; optimization; asset allocation; Foreign exchange; Carry trade

摘要

Transaction costs have a first-order effect on the performance of currency portfolios. Proportional costs based on quoted bid-ask spread are relatively small, but when a fund is large, costs due to the trading volume price impact are sizable and quickly erode returns, leaving many popular strategies unprofitable. A mean-variancetransaction-cost optimized approach (MVTC) that accounts for costs in the optimization efficiently tackles the problem with only relatively minor negative implications on before-cost profitability. MVTC is robust even when the price impact of trading is severe. Finally, we introduce an accurate extrapolation approach to expand the sample of the realized Amihud measure of Ranaldo and Santucci de Magistris (2022) from 12 to 26 currencies and from 2012 back in time to 1986.