Estimating the Profits from Trading Strategies.
Price improvement is the difference between the execution price of an order and the quoted bid or ask when the order was submitted. We show that expected price improvement falls off dramatically as the size of the order approaches the quoted depth, and becomes negative for larger orders. This is particularly important for small firms because the quoted depths are low. Using quoted spreads and depths and our estimate of expected price improvement, we show that trading strategies that attempt to exploit the weekly predictability of small-firm returns would be swamped by transaction costs. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.
Year of publication: |
1996
|
---|---|
Authors: | Knez, Peter J ; Ready, Mark J |
Published in: |
Review of Financial Studies. - Society for Financial Studies - SFS. - Vol. 9.1996, 4, p. 1121-63
|
Publisher: |
Society for Financial Studies - SFS |
Saved in:
Online Resource
Saved in favorites
Similar items by person
-
On the Robustness of Size and Book-to-Market in Cross-Sectional Regressions.
Knez, Peter J, (1997)
-
Explorations into Factors Explaining Money Market Returns.
Knez, Peter J, (1994)
-
Measurement of Market Integration and Arbitrage.
Chen, Zhiwu, (1995)
- More ...