Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/216539 
Year of Publication: 
2020
Series/Report no.: 
CESifo Working Paper No. 8143
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
The literature on currency investing that incorporates transaction costs uses costs relevant for small trade sizes. Using the entire order book of the major electronic brokerages for FX, we compute sweep-to-fill costs for trades of different sizes and illustrate the reduction in post-cost returns as trade size increases. Researchers should consider trade size and frequency to create realistic forecasts of post-tcost returns to gauge the capacity of a strategy. We show how incorporating tcosts in the construction of a portfolio improves performance for both high and low frequency strategies and retains a larger portion of the alpha.
Subjects: 
transaction costs
FX microstructure
exchange rates
portfolio construction
JEL: 
G15
F31
Document Type: 
Working Paper
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