market impact cost

CFA Level III Equities
#1

From Volume 4 Page 494.

“the lower absolute level of average trading volume of the smaller securities can be a significant implementation hurdle for a manager running a strategy with significant assets under management and significant positive active weights on smaller companies.”

Do not really understand what does it mean? What is the logic behind that?

#2

You have stocks that don’t trade often. You have an active position and potentially need to trade often on then. So it potentially results in higher trading costs due to the lower volumes, being unable to close out positions quickly or not being able to fill orders.

#3

Thank you.