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Papers

Read to gain insight from ITG perspectives and proprietary research on best practices in trading and portfolio analytics.

Transaction Costs and Equity Portfolio Capacity Analysis

August 1, 2009

We describe the evolution of equity portfolio capacity analysis, and extend existing work to include the joint determination of turnover, return net of transaction costs, and capacity. The results illustrate the possibility of expanding the effective range of a fund’s capacity in terms of assets under management through explicit consideration of the implementation costs of an investment decision.

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Large Orders and Execution Strategies: An Empirical Overview

January 12, 2011

What types of trading strategies are used for orders that demand extremely large levels of liquidity? What is their difference in trading costs? How do these strategies differ when trading stocks with different levels of market capitalization?

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ATS in Europe: Post MiFID Performance

February 2, 2011

Article 21 of the Markets in Financial Instruments Directive (MiFID) requires investment firms to “assess, on a regular basis, whether the execution venues included in the order execution policy provide for the best possible result for the client or whether they need to make changes to their execution arrangements."

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Benefits of Incorporating Transaction Costs During Portfolio Construction

February 9, 2011

It is well known that trading costs can eat up a substantial part of a portfolio’s return and ITG’s recent industry research on this topic clearly demonstrates that cost reduction is not just the prerogative of trading desks alone.

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Investing in Projected Russell 2000 Stock Additions: A Viable Investment Strategy or a Loser’s Game?

May 25, 2011

Every year at the end of June, the Russell Investment group reconstitutes its family of indexes. The associated investment opportunities and challenges are evident from the dual goals of indexers and speculators during the Russell reconstitution period: indexers need to keep their tracking errors under control, while speculators are looking to take advantage of the shifting demand and supply for the index additions and deletions.

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Trading Characteristics of Russell Indexes’ Constituents

June 8, 2011

ITG’s US Index Research Team provided market color and observations of the upcoming 2011 Russell Reconstitution in an April 2011 Insights article, 2011 Russell Reconstitution: Highlights and Analysis. The report indicated that the 2011 Russell Reconstitution may be a relatively “normal” event when compared to the rebalance in 2009 and 2010.

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Decoding European Regulation Is a Matter of Timing

April 10, 2012

If you believe that Dodd-Frank and its myriad of spinoff proposals are confusing, please open door number two and enter the world of European regulatory reform.

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Alpha-Optimized Trading Schedules: Identifying Own Price Impact in Realized Returns

June 14, 2012

The trading and investment style of a fund manager often has a major impact on his trading costs. Practitioners recognize that trading schedules can be optimized over an alpha pattern, but without correct identification of the price impact of own trading activity, resulting schedules are suboptimal.

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The Hidden Cost of Trading at the Close

April 21, 2001

Closing stock prices are widely used as benchmarks of value. Portfolio returns and mutual fund net asset values are computed using closing prices and some contracts and after-hours trading on various Alternative Trading Systems (ATS) and Electronic Communications Networks (ECNs) are based on closing prices.

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The Hidden Costs of Index Rebalancing: A Case Study of the S&P 500 Composition Changes of July 19, 2002

September 1, 2002

Periodic index rebalancing is associated with substantial price movements for the stocks added to and deleted from the index. These price changes represent significant hidden costs to portfolio managers who track the index. This article examines this issue, focusing on the dramatic return movements associated with the change of the S&P 500 index composition on July 19, 2002 when seven non-US companies were replaced by seven US companies.

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