Commission Structure for Stock Trades
Commission Structure for Stock Trades
Commission Structure for Stock Trades
Given the existing commission structure for buying and selling stockand the range of turnover ratios which exist, transaction costs couldbe an insignificant percentage of the asset value of the portfolio in anyyear or a rather important percentage. Since rates of return are basedupon interest, dividends, and capital gains after all relevant costs, itis interesting to analyze the impact of transaction costs on realizedrates of return.
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Obviously, since rates of return are measured after transaction costs,it is not necessary to adjust rates of return any further. It may beworthwhile, however, in diagnosing the cause of ultimate results tosee whether all of the trading activity was useful. An obvious way to make that determination is to see what rates of return and risk would have been if the investment manager had gone fishing andbeen utterly passive in his professional role. It is quite easy to determine what rates of return would have been if the assets in the portfolioat the beginning of the period in question had been retained throughout the period. This rate can be compared with the actual rate. Ifthe actual rate after all relevant costs exceeded the hypothetical rate, there was net benefit from the trading. If the hypothetical rate weregreater, the trading was disadvantageous.
A more refined question has to do with comparisons between actualtrading and degrees of activity other than total inaction. Analysis directed at the more refined question might indicate that trading wasadvantageous in rising markets and disadvantageous in falling markets,or the reverse; that trading was advantageous in stocks in certainindustries and not in others; or even that trading was advantageousor disadvantageous in particular stocks which the manager followedparticularly closely. In all of these analyses, it is necessary to distinguishbetween results which should be attributed to sampling fluctuationsand results which should be attributed to more basic and manageablecauses. Even in the absence of a scientific distinction of this sort, itshould be revealing and possibly instructive to both the beneficiaryor client and to the investment manager to know whether shifts amongsecurities produced results superior to total inaction.
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From time to time, students of investments or actual investors(sometimes the categories overlap) believe that they have schemesfor selecting stocks or timing investments which will produce superiorresults. If transaction costs are ignored, it is easy to be misled. A dramatic example is the filter technique of Alexander.4 When transactioncosts were excluded, the filter technique seemed to provide rates ofreturn substantially in excess of those obtainable by buying and holding securities. When transaction costs were taken into account, thesuperiority of the filter technique disappeared and an inferiority ofimpressive magnitude appeared. Learn Online Copywriter Skills To Eliminate Your Competition Watch Fla. International Golden Panthers vs Troy Trojans Online Now You Can Watch Futurama Online Online Eye Exam Coupons Watch Unstoppable Online on Megavideo Free Stream or Watch Oregon St. Beavers vs Washington St. Cougars Online Live webcast Watch Central Michigan Chippewas vs Navy Midshipmen on PC Live Online Finding free bets in the UK is easy - just look online Online Jewelry Stores Finding Great Deals On Womens Fashion Jewelry Online Prestigious textiles from onlinecurtainfabrics.com Watch Washington St. Cougars vs Oregon St. Beavers Online Live NCAA Scores Forex Day Trading System - What Every Trader Needs Stream or Watch San Diego St. Aztecs vs TCU Horned Frogs Online Live Feed