Model Comparison with Transaction Costs

• 成果类型: Article; Early Access
• 署名作者: Detzel, Andrew; Novy-Marx, Robert; Velikov, Mihail
• 署名单位: University of Denver; University of Rochester; University of Rochester
• 刊物名称: JOURNAL OF FINANCE
• ISSN/ISSBN: 0022-1082
• DOI: 10.1111/jofi.13225
• 发表日期: 2023
• 关键词: cross-section; anomalies; returns

摘要

Failing to account for transaction costs materially impacts inferences drawn when evaluating asset pricing models, biasing tests in favor of those employing high-cost factors. Ignoring transaction costs, Hou, Xue, and Zhang (2015, Review of Financial Studies, 28, 650-705) q-factor model and Barillas and Shanken (2018, The Journal of Finance, 73, 715-754) six-factor models have high maximum squared Sharpe ratios and small alphas across 205 anomalies. They do not, however, come close to spanning the achievable mean-variance efficient frontier. Accounting for transaction costs, the Fama and French (2015, Journal of Financial Economics, 116, 1-22; 2018, Journal of Financial Economics, 128, 234-252) five-factor model has a significantly higher squared Sharpe ratio than either of these alternative models, while variations employing cash profitability perform better still.