Transactions costs are a necessary aspect of implementing any investment strategy, whether active or passive. When evaluating investment strategies, the analysis of transactions costs is at risk of being overly simplified, leading to potentially erroneous conclusions about a manager’s trading acumen and ultimately suboptimal investment allocation decisions. The goal of this paper is to uncover the many nuances underlying transactions costs analysis and the implications of them when comparing costs across managers. It also presents a practical guide for due diligence pertaining to transactions costs that is meant to make the analysis more substantive.
The information contained herein is only as current as of the date indicated, and may be superseded by subsequent market events or for other reasons. The views and opinions expressed herein are those of the author and do not necessarily reflect the views of AQR Capital Management, LLC, its affiliates or its employees. This information is not intended to, and does not relate specifically to any investment strategy or product that AQR offers. It is being provided merely to provide a framework to assist in the implementation of an investor’s own analysis and an investor’s own view on the topic discussed herein. Past performance is not a guarantee of future results.