Single-Sided Turnover and Bid-Ask Spread Costs
Summary
The document explains why transaction-cost models may multiply purchase turnover by the full bid-ask spread, rather than counting both purchases and sales. A full spread represents the cost of a buy-and-sell round trip; when purchase and sale turnover are symmetric, charging half the spread on each side gives the same total as charging the full spread on one side. This accounting convention can therefore avoid counting the spread cost twice.
A separate explanation views monthly rebalancing as repeated one-way trades: positions are opened or adjusted, while the portfolio is not fully liquidated at each month end. The discussion is conceptual and does not establish a universally accepted definition of “single-counted” turnover. The appropriate calculation depends on how turnover is measured and how the spread assumption represents execution costs.
Key ideas
- A full bid-ask spread approximates the cost of a buy followed by a sell.
- Charging half the spread on both purchase and sale turnover can equal charging the full spread on purchase turnover when the sides are symmetric.
- Single-sided turnover can be used to avoid double-counting round-trip spread costs.
- The term and convention are not presented as universally standardized.
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Full text
# Modeling transaction cost with single-counted turnover ratio
# Modeling transaction cost with single-counted turnover ratio
Why do people use "Single-Counted" turnover ratio when modeling for transaction cost. I read a paper (Factor Investing in the Corporate Bond Market) which uses only the purchase side as turnover measure multiplied by a spread assumption.
This seems to assume that the sell side does not cost anything.
## Answer by Bob Jansen (score 1)
https://quant.stackexchange.com/a/24341
I couldn't find a definitive reference of this term and it doesn't seem to be widely used.
However, I think I can follow the logic: In their set-up the portfolio is rebalanced monthly. So, at the start positions are taken and costs incurred, since the positions are not liquidated at the end the costs for this month are only one way. After the first month position weights are updated incurring new costs but again one way because liquidation of these positions does not take place, so only one way. This process will continue so there is never a need to liquidate and only one trip will be made per month.
## Answer by Malick (score 0)
https://quant.stackexchange.com/a/29640
I would say because when you multiply the total turnover ratio by the full bid ask spread you obtain the double of transaction costs.
The bid ask spread contains the double of transaction costs ( it represents the cost of a round trip - of a consecutive buy and sell order), that is the reason why we often take half of the spread as an indication of the transaction costs. We usually assume that the real transaction costs are : $| \text{price} - \text{mid-quote} |$ which should correspond to $ \approx 0.5 * \text{spread}$. If you only take the purchase side (as in the paper you mentioned ) it amounts to compute half of the double spread which is the transaction costs.
Another way would be to compute $ [0.5 \times \text{spread} \times \text{purchase turnover} ]+ [0.5 \times \text{spread} \times \text{sell turnover} ] $
which is indeed equal to : $ \text{purchase turnover} * \text{spread}$ (assuming symmetry of the bid ask spread and realizing that purchase turnover is equal to sell turnover)Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.