COLLEGE OF POSTGRADUATE STUDIES

DEPARTMENT OF MBA

Article review:- on Model Comparison with Transaction Costs

By:- , ANDREW DETZEL, ROBERT NOVYMARX,andMIHAILVELIKOV

Journal of Journal of Finance / First View Article / 2015, doi:10.1111/jofi.13225

Reviewed By:-

Hana Girma Dejene

ID No: MO-3116-14A

Department MBA

Submitted To:

Instructor: Ass. Professor kirubel

march, 2023
1.Originality/value
This study uses a systematic literature review to review all critical f Model Comparison with
Transaction Costs and identifies new research avenues and different approaches to implementing
, Model Comparison with Transaction Costs using on the central role that investment factor
play in achieving firm success.

2.Review of Related literature

In the related literature the researchers provided three theoretical frameworks in relation to the
asset pricing implications of transaction cost and implementation friction. namely “DeMiguel et
al” (2020), “Sharp ratio” by Kan,Wang and Zheng(2019), “trading” by Whet anomalies

sophiscated institution by Frazzen Israel and Moskowiz (2015),”

 Does the literature review seem thorough & recent (within the last 5 years)?

- The researchers were most use literature review didn’t recent within in the last
five/5/ year time frame work.

 Does the content of the literature review relate directly to the research problem?

- The content of the literature review directly related to the research problem.

3.Methodology and Design

 Describe the study design-is it appropriate?

- The outers used Descriptive study design and also they were put
appropriately.

 How was the research conducted?(The study procedure itself) & data collected.

2
- This study uses a systematic review of the literature contained in the five factor model taken
similar position in market size, profitability and investment factor.

 Were the subject’s rights protected?

- The authors were carefully right protected.

4.Review on Conclusion and Recommendation

The results brought forward by this study provide empirical evidence that certain widely
accepted investment In a world with implementation costs, even the “right” risk-based asset
pricing model should not completely explain the cross section of before-cost
expected returns, but only the portion that arises as compensation for risk.
We investigate which asset pricing models explain the cross section of returns taking transaction
costs into account. Our results show that correcting for costs fundamentally alters the outcome of
model comparison exercises. These incentives can bias researchers, even
unintentionally, toward experimental designs that are more likely to yield
“positive” results. Ignoring implementation issues often yields stronger results. Many high-
turnover strategies look attractive when ignoring trading costs, but are impossible to profitably
trade. Inferences drawn from tests ignoring frictions often cannot be generalized into real
economic insights. To be most useful, financial research must incorporate real world concerns to
the greatest extent possible .Prior model-selection studies tend to pick factors that update at a
monthly frequency because they account for the benefits of frequent updating while
ignoring the costs incurred when doing so. This gives these model un realizable an illusory
advantage over models with factors that update only annually. This study has risen important
issues in the Model Comparison with Transaction Costs since the investment behavior
changes with time, managers need to be ready to new mind sets and changes to organizations

6. Implication for research practice

 What were the implications of this study to practitioners?

3
 - The authors’ implication of the study to practitioner that to address the almost
total lack of research evidence on what it means to mobilize knowledge when
operating at the very top source.

 How does the study contribute to the body of knowledge?

-By reviewing empirical studies on a subject matter, creating new knowledge based on
the previous available knowledge by doing extensive and innovative research.

 Could the study be replicated?

- Outers didn’t replicate the study.

 What additional questions does the study raise?
- The authors did not raised additional question.