Capacity Estimation

Hi algortraders.

Have any of you done work in estimating a strategy's capacity?

Lets say the strategy targets small caps, to what extent can daily volume be used as a proxy for slippage/liquidity?

I've tried to reverse engineer how things work at some larger funds and I'm getting some strange findings.

Looking at the Eaton Vance Small Cap Fund:

This is a $1.7b fund that has a 2.84% (or $48m) exposure to Valvoline, which trades around $30m per day. Surely entering a $48m position in a stock that trades $30m per day would have a disastrous effect on slippage? Even if they spread the trade over multiple days they're still a significant portion of the volume.

Submitted October 09, 2020 at 03:57AM by iambeingserious

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