i-star global cost index 1q 2013

I-STAR GLOBAL COST INDEX

1Q 2013 Market Outlook

March 15, 2013

Kissell Research Group, LLC

1010 Northern Blvd., Suite 208

Great Neck, NY 11021

www.kissellresearch.com

A message from the Kissell Research Group…

It is our pleasure to present our “1Q 2013 Global Trading Cost Index Report.”

Our analysis covers all global regions including developed, emerging, and frontier markets.

These reports are intended to provide traders and portfolio managers with necessary

information to make informed portfolio construction and trading decisions.

We provide our models and model parameters directly to investors. This allows investors to run

analyses from within their own applications, and using their own market expectations and alpha

estimates, without having to interact with any outside party or website. This eliminates the

possibility of information leakage or potentially having someone reverse engineer the

investment decision process.

And most importantly, our methodology is fully transparent and verifiable. We do not employ a

box approach and we encourage investors to evaluate and test our results.

Robert Kissell, President

Kissell Research Group I-Star Global Cost Index 1Q 2013 2

Executive Team


Robert Kissell, Ph.D

President

Over 20+ years experience

Previous: JPM, UBS, Instinet

Roberto Malamut, Ph.D

Head of Quantitative Research

Previous: SAC, JPM, ITG

Michael Blake

Head of Technology

Cloud Computing, Big Data

NASA Consultant

Diana Muzan

Head of Product Development

Previous: BNP

Morton Glantz, Advisor

Previous: SVP JPMChase

Euromoney Consultant

Fordham Professor

Executive Summary

• We evaluated trading costs across global regions.

• The analysis covers sixty-three (63) countries across ten (10) regions in the Americas, Europe, Asia,

LatAm, and in the Frontier Markets.

• US and Canada continue to have the lowest trading costs.

• Trading costs in Canada are relatively unchanged YTD compared to year end.

• In the US, large and small cap stocks experience an increase in trading costs YTD but were unchanged

MOM.

• Developed Europe experienced a spike in costs 2013 YTD.

• The increase in trading costs throughout most of developed Europe was fueled by increased order flow

sensitivity and continued investor uncertainty.

• Costs in many of the developed European countries have surpassed the costs in Emerging Europe.

• Developed Europe experienced the largest variation in trading costs across countries. The lowest trading

cost countries are in the Nordic area (Norway, Sweden, and Finland). The most expensive trading cost

countries were in the Mediterranean area (Greece, Spain, and Italy).

• The large variation in costs across Europe could have a dramatic effect on portfolio construction and

asset allocation as managers incorporate trading costs into the stock selection process.

• Emerging & Frontier Markets have experienced a recent decline in costs MOM.

• Emerging Asia & Frontier markets have experienced the largest decline in trading costs YTD.

• Investors appear to have become less sensitive to order flow in these areas, some of which is already

reflected in reduced volatility.


Details Long-Term Trading Cost Trends (2008 – Present)

• We evaluated long-term trading costs using our I-Star Cost Index model across the global regions for the period

2008 - present.

• As shown in the graphs, trading costs are far from constant. There was a large spike in the I-Star Index during the

Financial Crisis of 2008-2009, the May 2010 Flash Crash, and the Summer-Fall 2011 European & US Debt

Concerns. The increase in trading costs during the flash crash and debt issue concern periods were not as

pronounced in the emerging and frontier markets as they were in the developed markets. This insight shows that

trading costs have not been as highly correlated across countries has been observed with price movement trends

and price covariance.

• Trading costs have leveled off over the last year, but many markets and countries have experienced a recent

increase in trading costs during the early months of 2013.

Country Trading Cost

• We evaluated trading cost across various countries in each of our Global Regions.

• This included US, Canada, Europe (Developed & Emerging), Asia (Developed & Emerging), LatAm, and Frontier

Markets.

• As shown in the graphs, trading costs were lower on average for the developed markets.

• However, many of the emerging countries currently have costs more consistent with the developed markets (e.g.,

Israel, South Africa, Malaysia), and many of the developed countries have costs that are more reflective of emerging

countries (e.g., Italy, Spain, Greece, and Japan).

• These differences in trading costs, however, is often due to volatility and liquidity conditions, and overall investor

sentiment and macro-economic conditions, which are all subject to a quick market adjustments and reversals.

• Our trading cost estimates do not include the spread cost by country which may or may not have a large influence on

the total cost that will be incurred by the investor. Spread contribution to cost is a function of market, size, and

urgency level.


FAQ • What is the I-Star Cost Index?

• Our I-Star Trading Cost Model is a market impact estimate for an order that comprises 10% of the

stock’s average trading volume (ADV) executed via a full day VWAP strategy. The model incorporates

current liquidity and volatility in the market. The cost index value is an average across all stocks.

• Model parameters are computed for each of our regions (see references for insight into our parameter

estimation process).

• The I-Star Cost Index Model is described on page 24.

• What is our Estimation / Forecasting Methodology?

• Our cost estimates are based on our model parameters and market conditions over the historical /

current period. Our cost forecasts are based on our model parameters and the expected market

conditions over the forecasted period (e.g., volatility & liquidity). The Model is described on page 24.

• What is Market Impact?

• Market impact is the price movement in the stock caused by your trade or order. The impact is due to the

liquidity/urgency needs of the trade (temporary) and the information content conveyed to the market

(permanent). Our estimates distinguish between temporary and permanent impact.

• What about Spread Costs?

• Our trading cost estimate focuses solely on the price movement in the stock due to the particular trade

or order. Spreads represent a fixed trading cost component, and the actual percentage of spreads that

investors will incur is a function of the order size and time horizon of the trade.


What is included in the report…

• Long-Term Cost Trends: we estimated our I-Star Cost Index cross all regions over the period 2008

through present. These values were based on our market impact model parameters calibrated for

each historical month in the period, along with actual market conditions and volatility within each

month. Our trend analysis also includes quarter over quarter cost change for each region. (See

page 10).

• Current Cost Forecasts: we estimated the I-Star Cost Index for each region based on the current

model parameters and average market conditions in the region. (See page 14).

• Costs by Country: we compare I-Star Cost Index estimates across sixty-three countries in our

regions. These estimates were based on current model parameters and actual market conditions

within each country. (See page 15).

• Cost Curves: our cost curves provide investors with the expected trading costs for various order

sizes and trading strategies. The cost curves are computed for each of our trading regions based on

current market conditions. (See page 20).

• I-Star Market Impact Model: the formulation of our I-Star impact model is provided along with our

calibrated parameters. This allows investors to verify our results as well as incorporate their own

proprietary views into customized analyses. (See page 24).

• Further information on our model and methodology is provided in the References (See page 27).

*** Individual Stock and Country Analysis is Available upon Request ***


Trading Cost Snapshot


• The graph above presents our trading cost findings

across regions.

• The I-Star Index is computed based on an order of

10% Adv executed via a full day VWAP strategy.

• The calculation incorporates current volatility and

liquidity conditions into the cost estimate.

• Historically, US and Canada have been the markets

with the lowest trading costs, followed by developed

Europe.

• Costs in Developed Europe, however, have increased

recently and it is now more costly to transact shares in

Developed Europe compared to Emerging Europe.

• The graph above shows the change in trading costs

for each region for YTD and MOM.

• Both the US markets and Developed Europe have

experienced an increase in cost since the beginning of

the year. But they have held relatively constant over

the last month.

• Emerging Asia and the Frontier markets have realized

the largest reduction in costs since beginning of the

year, but they still represent the more costly trading

markets overall.

I-Star Cost Index – Country Coverage


EMEA EMEA Asia Asia

Americas Developed Emerging Developed Emerging Latam Frontier

US - Large Austria Czech Republic Australia China Argentina Abu Dhabi

US - Small Belgium Egypt Hong Kong India Brazil Bahrain

Canada Britain Hungary Japan Indonesia Chile Dubai

Denmark Israel New Zealand Korea Colombia Estonia

Finland Morocco Singapore Malaysia Mexico Jordan

France Poland Pakistan Peru Kazakhstan

Germany Russia Philippines Kuwait

Greece South Africa Taiwan Oman

Ireland Turkey Thailand Qatar

Italy Vietnam Ukraine

Netherlands

Norway

Portugal

Spain

Sweden

Switzerland

As of: 3/1/2013

TRADING COST TRENDS

I-Star Global Trading Cost Trends


• The graphs above show the long term trends in

trading costs across the developed markets.

• The graph to the left shows trading cost trends in

across the developed markets over the last thirteen

months.

• Evidence shows that trading costs have been

trending down since summer 2012.

• Costs reached all time lows in January 2013 but

have increased slightly over the last two months.

I-Star Global Trading Cost Trends


• The graph above shows long term trading cost

trends for the Emerging Markets from Jan-2008 to

present.

• The graph to the left shows trading cost trends over

the last thirteen months.

• LatAm and the Frontier markets have consistently

had the highest costs across time.

• Relatively little correlation across Emerging Europe

and Emerging Asia.

Market Observations

• The graph above shows the quarterly trading cost

trends by region over the last four quarters.

• As shown, costs have been trending lower since 2Q-

2012.

• The exception is Emerging Asia where costs spiked in

Jan-2013 due to increased volatility and decreased

liquidity. But costs have begun to subside in Feb and

March.

• The graph above shows the market efficiency

rating for each of our regions.

• Our market efficiency rating is a measure of how

quickly information is absorbed into the market.

• North America has the highest efficiency ratio

followed by Developed Asia and Developed

Europe.

• Emerging Markets, Latam, and Frontier markets

has the highest opportunity for profiting.


70%

75%

80%

85%

90%

95%

100%

105%

Market Efficiency Rating1Q-2013

0

10

20

30

40

50

60

70

Tra

din

g C

ost

(b

asi

s p

oin

ts)

I-Star Index - Quarterly Trends

2Q-2012

3Q-2012

4Q-2012

1Q_2013

Forecasted Costs – Various Sizes (% Adv)


0

1

2

3

4

5

6

7

8

9

Co

st (

bp

)

Forecasted Costs

1% ADV

0

10

20

30

40

50

60

Co

st (

bp

)

Forecasted Costs10% ADV

0

5

10

15

20

25

30

35

Co

st (

bp

)

Forecasted Costs

5% ADV

0

20

40

60

80

100

120

140

Co

st (

bp

)

Forecasted Costs25% ADV

COUNTRY COST ANALYSIS

Country Cost Analysis – North America

• The graphs above provide the cost index for different

indexes.

• Large cap stocks have the lowest costs followed by mid

cap and then small caps stocks

• There was relatively little difference in trading costs

across market capitalization in Canada.


0 5 10 15 20 25

CA-Small

CA-Large

R2000

R1000

SP600

SP400

SP500

US Indexes1Q-2013

0 5 10 15 20 25

Materials

Financials

Energy

Industrials

Tech

ConsDiscr

Telecomm

HealthCare

Utilities

ConsStap…

US Sectors1Q-2013

• The graphs above show the trading costs by GIC Sector.

• Historically, Utilities and Telecomm have been the least

expensive sectors. Tech and Financials have been the

most expensive sectors.

Country Cost Analysis – Europe

• The Nordic countries experienced the lowest trading

costs during the first quarter 2013.

• Most expensive countries were the Mediterranean

countries of Italy, Spain, and Greece.

• This analysis shows that there is a large potential for

costs to vary by country within a region.

• Portfolio managers need to

• Emerging Europe historically has had some of the

largest ranges in trading costs across countries with

some countries having costs more consistent with

developed Europe and some countries having costs

more consistent with other emerging markets.

• Historically, South Africa, Egypt and Czech Republic

have had the lowest costs across emerging Europe.

• Turkey, Morocco, and Poland have historically been

the most expensive countries to trade.


0 10 20 30 40

Italy

Spain

Greece

Denmark

France

Germany

Belgium

Portugal

Ireland

Netherlands

Austria

Switzerland

Finland

Britain

Sweden

Norway

Developed1Q-2013

0 5 10 15 20 25 30 35

Poland

Morocco

Hungary

Russia

Egypt

Czech Republic

Turkey

South Africa

Israel

Emerging1Q-2013

Country Cost Analysis – Asia

• Costs in developed Asia have increased in 1Q-2013

• Most Expensive Countries: Japan

• Least Expensive: New Zealand & Australia

• Largest Change MoM: Japan (+35%)

• Japan has historically been one of the lower trading

cost countries in Asia.

• Costs in emerging Asia have decreased in 1Q-2013.

• Least Expensive: Malaysia, Taiwan, and Indonesia

• Most Expensive: China, Philippines, and Vietnam

• Largest Change: Vietnam and Korea

• Korea and China have historically been the lower

trading cost countries in emerging Asia.


0 5 10 15 20 25 30 35

Japan

Singapore

Hong Kong

Australia

NewZealand

Asia Developed1Q-2013

0 10 20 30 40 50

Vietnam

Philippines

China

Pakistan

India

Thailand

Korea

Indonesia

Taiwan

Malaysia

Asia Emerging1Q-2013

Country Cost Analysis – LatAm & Frontier

• LatAm is one of the most expensive trading cost

regionss. The higher costs in this region is due to

higher volatility and increased sensitivity to order flow.

• In Mexico & Argentina, costs have been steadily

increasing YTD. This is a reversal of the decreasing

trend experienced by both countries towards the end

of the year.

• Most Expensive: Argentina and Mexico

• Least Expensive: Chile and Colombia

• The Frontier markets have historically been the most

expensive trading cost markets.

• This is primarily due to higher volatility and order

sensitivity, and also due to a higher permanent impact

measure. The higher permanent impact is due to the

higher information content of the trade or at least a

higher perception of permanent impact.

• Most Expensive: Kuwait & Ukraine

• Least Expensive: Lithuania, Abu Dhabi, and Dubai


0 10 20 30 40 50 60

Argentina

Mexico

Peru

Brazil

Colombia

Chile

Latam1Q-2013

0 20 40 60 80 100 120

Kuwait

Ukraine

Kazakhst…

Estonia

Qatar

Jordan

Bahrain

Oman

Dubai

Abu Dhabi

Lithuania

Frontier1Q-2013

COST CURVES

Cost Curves (basis points)


1Q-2013: US Large Cap Stocks 1Q-2013: US Small Cap StocksOrder Trading Strategy Order Trading Strategy

Size 1-day Percentage of Volume (POV Rate) Size 1-day Percentage of Volume (POV Rate)

%ADV VWAP 5% 10% 15% 20% 25% 30% 35% 40% %ADV VWAP 5% 10% 15% 20% 25% 30% 35% 40%

1% 1.7 3.2 4.3 5.1 5.8 6.4 6.9 7.4 7.9 1% 2.5 5.3 7.6 9.5 11.1 12.6 13.9 15.2 16.4

5% 8.7 8.9 11.9 14.2 16.1 17.7 19.1 20.5 21.7 5% 11.1 11.3 16.3 20.3 23.7 26.9 29.8 32.5 35.1

10% 17.7 13.8 18.5 22.0 24.9 27.4 29.6 31.7 33.6 10% 21.5 15.7 22.6 28.1 33.0 37.3 41.3 45.1 48.7

15% 26.7 17.8 23.8 28.3 32.1 35.3 38.2 40.9 43.4 15% 31.6 19.1 27.4 34.1 39.9 45.2 50.1 54.7 59.0

20% 35.6 21.3 28.6 34.0 38.5 42.4 45.8 49.0 52.0 20% 41.4 21.8 31.3 39.0 45.7 51.8 57.4 62.6 67.6

25% 44.3 24.6 32.9 39.1 44.3 48.8 52.8 56.4 59.8 25% 50.8 24.3 34.8 43.4 50.8 57.6 63.8 69.6 75.1

30% 52.8 27.5 36.9 43.9 49.7 54.7 59.2 63.3 67.1 30% 60.0 26.5 38.0 47.3 55.4 62.7 69.5 75.9 81.8

35% 61.2 30.3 40.6 48.3 54.7 60.3 65.2 69.8 73.9 35% 68.9 28.5 40.8 50.9 59.6 67.5 74.8 81.6 88.0

40% 69.5 33.0 44.2 52.6 59.5 65.6 71.0 75.9 80.4 40% 77.5 30.3 43.5 54.2 63.5 71.9 79.7 86.9 93.8

45% 77.6 35.6 47.6 56.6 64.1 70.6 76.4 81.7 86.6 45% 85.8 32.1 46.0 57.3 67.1 76.0 84.2 91.9 99.1

50% 85.5 38.0 50.9 60.5 68.5 75.4 81.7 87.3 92.6 50% 93.9 33.7 48.3 60.2 70.5 79.9 88.5 96.6 104.2

1Q-2013: Canada Large Cap Stocks 1Q-2013: Canada Small Cap StocksOrder Trading Strategy Order Trading Strategy


%ADV VWAP 5% 10% 15% 20% 25% 30% 35% 40% %ADV VWAP 5% 10% 15% 20% 25% 30% 35% 40%

1% 1.6 3.6 5.1 6.2 7.2 8.1 8.9 9.6 10.3 1% 1.6 3.2 4.4 5.3 6.1 6.8 7.4 8.0 8.6

5% 8.9 9.1 12.9 15.8 18.3 20.5 22.5 24.4 26.1 5% 8.8 9.0 12.4 15.1 17.3 19.3 21.1 22.8 24.3

10% 18.4 13.6 19.3 23.7 27.4 30.7 33.7 36.4 39.0 10% 18.7 14.2 19.5 23.7 27.2 30.3 33.1 35.8 38.2

15% 27.9 17.3 24.4 29.9 34.6 38.8 42.6 46.1 49.3 15% 28.8 18.4 25.4 30.8 35.4 39.5 43.1 46.5 49.7

20% 37.3 20.4 28.8 35.4 40.9 45.9 50.3 54.4 58.3 20% 39.1 22.2 30.6 37.1 42.7 47.6 52.0 56.1 59.9

25% 46.6 23.2 32.8 40.3 46.6 52.2 57.3 62.0 66.3 25% 49.3 25.7 35.4 42.9 49.3 55.0 60.1 64.9 69.3

30% 55.7 25.8 36.5 44.8 51.8 58.0 63.7 68.9 73.7 30% 59.5 28.9 39.8 48.3 55.5 61.9 67.7 73.0 78.0

35% 64.6 28.2 39.9 48.9 56.6 63.4 69.6 75.3 80.6 35% 69.7 32.0 44.0 53.4 61.4 68.4 74.8 80.7 86.2

40% 73.4 30.5 43.1 52.9 61.2 68.5 75.2 81.4 87.1 40% 79.7 34.9 48.0 58.3 67.0 74.6 81.6 88.1 94.1

45% 82.0 32.6 46.1 56.6 65.5 73.4 80.5 87.1 93.3 45% 89.6 37.6 51.9 62.9 72.3 80.6 88.1 95.1 101.6

50% 90.4 34.7 49.1 60.2 69.6 78.0 85.6 92.6 99.2 50% 99.4 40.3 55.5 67.4 77.4 86.3 94.4 101.8 108.8



1Q-2013: EMEA - Developed 1Q-2013: EMEA - EmergingOrder Trading Strategy Order Trading Strategy


%ADV VWAP 5% 10% 15% 20% 25% 30% 35% 40% %ADV VWAP 5% 10% 15% 20% 25% 30% 35% 40%

1% 2.5 3.9 5.0 5.9 6.6 7.2 7.7 8.2 8.7 1% 2.6 3.9 4.9 5.7 6.3 6.9 7.4 7.9 8.3

5% 12.1 12.3 15.7 18.3 20.5 22.5 24.2 25.9 27.4 5% 12.1 12.2 15.4 17.8 19.9 21.6 23.3 24.8 26.2

10% 24.8 20.2 25.7 30.0 33.6 36.8 39.7 42.3 44.8 10% 24.4 20.0 25.2 29.1 32.5 35.4 38.1 40.5 42.8

15% 37.9 26.9 34.3 40.0 44.8 49.1 52.9 56.4 59.7 15% 36.9 26.7 33.6 38.9 43.3 47.2 50.8 54.0 57.1

20% 51.1 33.0 42.1 49.1 55.0 60.2 64.9 69.2 73.2 20% 49.6 32.8 41.2 47.7 53.1 57.9 62.3 66.3 70.0

25% 64.4 38.6 49.3 57.5 64.4 70.5 76.0 81.1 85.8 25% 62.2 38.4 48.3 55.9 62.2 67.9 73.0 77.6 82.0

30% 77.7 44.0 56.1 65.5 73.3 80.3 86.5 92.3 97.7 30% 74.9 43.7 54.9 63.6 70.8 77.3 83.0 88.4 93.3

35% 90.9 49.0 62.6 73.0 81.8 89.5 96.5 103.0 108.9 35% 87.4 48.8 61.3 70.9 79.0 86.2 92.6 98.6 104.1

40% 104.0 53.9 68.8 80.3 89.9 98.4 106.1 113.2 119.8 40% 99.9 53.6 67.4 78.0 86.9 94.8 101.9 108.4 114.5

45% 117.0 58.6 74.8 87.3 97.8 107.0 115.4 123.1 130.2 45% 112.3 58.3 73.3 84.8 94.5 103.0 110.7 117.9 124.5

50% 129.9 63.2 80.7 94.1 105.4 115.3 124.4 132.6 140.3 50% 124.5 62.8 79.0 91.4 101.8 111.0 119.3 127.0 134.1

1Q-2013: Asia - Developed 1Q-2013: Asia - EmergingOrder Trading Strategy Order Trading Strategy


%ADV VWAP 5% 10% 15% 20% 25% 30% 35% 40% %ADV VWAP 5% 10% 15% 20% 25% 30% 35% 40%

1% 2.0 3.4 4.5 5.4 6.2 6.9 7.6 8.2 8.7 1% 3.1 4.5 5.6 6.5 7.2 7.8 8.3 8.9 9.3

5% 10.3 10.5 14.0 16.8 19.2 21.4 23.4 25.3 27.0 5% 14.9 15.2 18.8 21.6 23.9 26.0 27.9 29.6 31.2

10% 21.8 17.1 22.8 27.3 31.3 34.8 38.1 41.1 44.0 10% 30.6 25.5 31.6 36.3 40.2 43.7 46.9 49.8 52.5

15% 34.1 22.7 30.3 36.3 41.6 46.3 50.6 54.7 58.5 15% 46.9 34.6 42.8 49.2 54.6 59.3 63.5 67.5 71.1

20% 46.7 27.8 37.0 44.4 50.9 56.6 61.9 66.9 71.5 20% 63.4 42.9 53.2 61.0 67.7 73.5 78.8 83.7 88.2

25% 59.5 32.5 43.3 52.0 59.5 66.2 72.4 78.2 83.7 25% 80.0 50.7 62.8 72.2 80.0 86.9 93.2 99.0 104.3

30% 72.4 37.0 49.2 59.1 67.6 75.3 82.3 88.9 95.1 30% 96.7 58.1 72.0 82.7 91.7 99.7 106.9 113.5 119.6

35% 85.4 41.2 54.9 65.8 75.3 83.9 91.7 99.1 106.0 35% 113.5 65.2 80.9 92.9 103.0 111.9 120.0 127.4 134.3

40% 98.3 45.2 60.2 72.3 82.7 92.1 100.7 108.8 116.4 40% 130.1 72.1 89.4 102.7 113.8 123.7 132.6 140.8 148.4

45% 111.3 49.1 65.4 78.5 89.9 100.1 109.4 118.2 126.4 45% 146.8 78.8 97.7 112.1 124.4 135.1 144.8 153.8 162.1

50% 124.2 52.9 70.5 84.5 96.7 107.7 117.8 127.2 136.1 50% 163.3 85.2 105.7 121.4 134.6 146.2 156.8 166.4 175.5



1Q-2013: LatAm 1Q-2013: FrontierOrder Trading Strategy Order Trading Strategy


%ADV VWAP 5% 10% 15% 20% 25% 30% 35% 40% %ADV VWAP 5% 10% 15% 20% 25% 30% 35% 40%

1% 4.3 6.3 7.8 8.9 9.9 10.8 11.6 12.3 12.9 1% 7.9 10.9 12.9 14.4 15.6 16.6 17.5 18.3 19.1

5% 20.7 21.0 26.0 29.9 33.2 36.0 38.6 41.0 43.2 5% 30.4 30.8 36.5 40.6 44.0 46.9 49.4 51.7 53.9

10% 42.5 35.3 43.8 50.3 55.8 60.6 65.0 69.0 72.7 10% 55.6 48.1 57.0 63.5 68.8 73.3 77.3 80.9 84.2

15% 64.9 47.9 59.4 68.2 75.6 82.1 88.1 93.5 98.6 15% 79.4 62.5 74.1 82.5 89.3 95.2 100.4 105.1 109.4

20% 87.8 59.4 73.7 84.6 93.8 101.9 109.3 116.0 122.3 20% 102.2 75.2 89.2 99.3 107.5 114.6 120.9 126.5 131.7

25% 110.9 70.3 87.1 100.0 110.9 120.5 129.2 137.2 144.6 25% 124.2 86.9 103.0 114.6 124.2 132.3 139.6 146.1 152.1

30% 134.1 80.5 99.9 114.7 127.2 138.2 148.1 157.3 165.8 30% 145.5 97.7 115.8 128.9 139.7 148.8 157.0 164.4 171.1

35% 157.2 90.4 112.1 128.7 142.7 155.1 166.3 176.5 186.1 35% 166.2 107.9 127.9 142.4 154.3 164.4 173.4 181.5 189.0

40% 180.4 99.9 123.9 142.3 157.8 171.4 183.8 195.1 205.7 40% 186.3 117.7 139.4 155.2 168.1 179.2 189.0 197.9 206.0

45% 203.4 109.2 135.3 155.4 172.3 187.3 200.7 213.1 224.7 45% 206.0 126.9 150.4 167.5 181.4 193.3 203.9 213.5 222.3

50% 226.3 118.1 146.5 168.2 186.5 202.7 217.3 230.7 243.2 50% 225.2 135.9 161.0 179.3 194.2 206.9 218.3 228.5 237.9

I-STAR IMPACT MODEL

I-Star Impact Model

3ˆ

2ˆ

1

* ˆ a

a

ADV

SaI

*

1

4ˆ*

1ˆ1ˆ IbPOVIbMI a

I-Star Impact Model

Transparent Formulation

No API or B/D connection required

Integrate into in-house models and systems

No information leakage or potential for the investment

decision process to be reverse engineered

Incorporate proprietary estimates into the model including

alpha, volatility, liquidity, etc.

Perform “what-if,” “sensitivity,” and enhanced VaR

Generate proprietary factor scores, back-testing

universes

Evaluate real-time performance across all brokers

Parameters can be calibrated based on client trades

I=instantaneous Impact (bp)

MI=market impact cost (bp)

S = Shares to Trade

ADV = Average Daily Volume

POV = Percentage of Volume / Participation Rate

σ = Annualized Volatility

Model Parameters:

Markets: US-LC, US-SC, Canada (Large and

Small), Europe, Asia, Latam, and Frontier,

and Emerging and Developed Markets.

Instruments: Equities, ETFs, Futures, Fixed

Income


I-Star Market Impact Model - Parameters


• Our “I-Star Cost Index Market Impact Model” is calibrated for each of our global regions.

• These include: Americas, Canada, Europe, Asia, LatAm, and Frontier. These regions are further

classified by developed and emerging markets, and for large and small cap stocks.

• Model parameters are estimated on a weekly basis and we performance a thorough statistical

analysis on estimated parameters. Further information on our estimation and testing procedure is

provided in the references section (see page 28).

• Costs estimates across regions and countries incorporate estimated model parameters and actual

market conditions in each region.

• The model parameters for 2011 are shown above. Current Parameters are available upon request.

Market Impact Parameters: 2011

Parameter US-LC US-SC CA-LC CA-SC EU-Dev EU-Emerg Asia-Dev Asia-Emrg Latam Frontier

a1: 1507.5 1831.7 1525.6 1772.7 1809.9 1910.9 1543.7 1851.2 2431.9 2356.0

a2: 0.38 0.45 0.41 0.60 0.65 0.41 0.49 0.41 0.52 0.52

a3: 0.94 0.91 0.95 0.81 0.60 0.82 0.85 0.91 0.92 1.05

a4: 1.05 1.04 0.94 1.05 0.94 1.00 0.93 0.96 1.00 0.80

b1: 0.97 0.93 0.97 0.90 0.95 0.86 0.91 0.90 0.86 0.82

• Optimal Trading Strategies, Amacom, Inc., 2013.

• The Science of Algorithmic Trading and Portfolio Management, Elsevier, 2013.

• The I-Star Market Impact Model – Derivation; www.KissellResearch.com.

• Creating Dynamic Pretrade Models: Beyond the Black Box, Journal of Trading, Fall

2011, pg. 8-15.

• Investing and Trading Consistency, Journal of Trading, Fall 2007.

References


http://www.kissellresearch.com/

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i-star global cost index 1q 2013

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