Paper profits or real money? Trading costs and stock market anomalies in country ETFs
Adam Zaremba , Laura Andreu
AbstractAre the quantitative equity strategies for country selection robust to implementation costs? To answer this question, we conduct a comprehensive examination of the country-level strategies so far. We review, classify, and replicate 120 equity anomalies within a sample of 42 country equity indices for the years 1996–2017. Next, using ETF price and spread data, we test the effect of real-life conditions and trading costs on the anomaly performance. We also examine three cost-mitigation strategies: infrequent rebalancing, capitalization-based weighting, and focus on low-cost securities. We find that 46% of the long-only monthly rebalanced anomaly portfolios display significant alphas, concentrated strongly among strategies based on value, momentum, and liquidity. The effect of transaction costs proves largely lethal to returns, leaving only a handful of anomalies profitable. Less frequent rebalancing (annually) helps to regain the effectiveness of the strategies, increasing the monthly alphas on the long-only anomaly portfolios to 0.44% on average.
|Journal series||International Review of Financial Analysis, ISSN 1057-5219, (A 20 pkt)|
|Publication size in sheets||0.55|
|Keywords in English||Trading costs, Exchange traded funds, Country equity indices, Quantitative strategies, International investment, Return predictability, Equity anomalies, Cross-section of returns|
|Score||= 20.0, 09-03-2020, ArticleFromJournal|
|Publication indicators||= 2; : 2018 = 1.193; : 2017 = 1.566 (2) - 2017=1.729 (5)|
* presented citation count is obtained through Internet information analysis and it is close to the number calculated by the Publish or Perish system.