Transaction Costs & Market Impact: Models & Analysis › Key Parameters
Michael BrenndoerferJanuary 8, 20261 min read
Quantitative FinanceAll chapters Part 14 of 15Strategy Development and Backtesting
Transaction Costs & Market Impact: Models & Analysis › Key ParametersOne section · Sections in this chapter13 / 16 ↓
Sections in this chapter16
Reading tools Definitions & inline links
Choose your expertise level to adjust how many terms are explained. Beginners see more tooltips, experts see fewer to maintain reading flow. Hover over underlined terms for instant definitions.
Article links
Make inline references clickable
The key parameters for strategy capacity estimation are:
- Gross Alpha: Expected strategy return before costs. Higher alpha supports higher capacity.
- Turnover: Annual portfolio turnover. High turnover rapidly consumes alpha through transaction costs.
- (Volume): Daily trading volume. Strategies are constrained by the available liquidity in their target assets.
- ̒: Asset volatility. Higher volatility implies higher market impact costs.
- Minimum Net Alpha: The performance floor required for the strategy to be considered viable.