PT  - JOURNAL ARTICLE
AU  - Vlad Rashkovich
AU  - Arun Verma
TI  - Trade Cost: <em>Handicapping on PAR</em>
AID  - 10.3905/jot.2012.7.4.047
DP  - 2012 Sep 30
TA  - The Journal of Trading
PG  - 47--54
VI  - 7
IP  - 4
4099  - https://pm-research.com/content/7/4/47.short
4100  - https://pm-research.com/content/7/4/47.full
AB  - We analyze the prevailing approach to estimating implicit trade costs and suggest improvements that create greater precision. Our model studies buy-side parent orders to prove that Size/ADV is a sublinear factor, which means that doubling an order does not double the trade cost. The same precision cannot be achieved from the child order data available to the sell side. After improving on existing methods, we cast doubt on whether it is realistic to delineate permanent and temporary costs when numerous market participants influence prices simultaneously. As a result, we introduce a new highly accurate pre-trade cost model with predictive power (R2) of up to 26%.TOPICS: Factor-based models, portfolio construction, statistical methods