Abstract
Market-impact costs are a widely discussed issue in investment management, but are rarely quantified in a way that is useful for investors in making manager-selection decisions. In this article, I adapt academic research to create a simple formula for measuring market-impact effects from the outside in, and discuss the implications of these costs on capacity, pricing, and other issues. In particular, there is a contradiction between the size at which funds close and their fee levels, suggesting that asset managers either do not understand market impact well, or alternatively that they believe they cannot generate alpha in excess of their fees. The paper also outlines directions for future research.
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