Transaction costs

With rising turnover in institutional portfolios, investment managers are p aying increasing attention to transaction costs. The authors provide some i nsight into managing costs in an approach that assumes trading is a process , not an event. In the process, there are three actors: portfolio manager, in-house trader, and broker, each with its own period of discretion. Costs of transacting should be attributed to the different actors according only to their periods of discretion. High-turnover portfolios should invest in s ystems that would allow estimation of the costs attributable to each actor' s decisions. The authors illustrate how this might be done.