Impact of Liquidity on Transaction Costs in Portfolio Rebalancing

As a portfolio manager, you are tasked with actively managing a diversified portfolio that includes both equities and fixed income securities. During a recent review of the portfolio, you identify that the equity portion has significantly outperformed its benchmark, leading to an allocation drift away from the intended target weights. In order to realign the portfolio back to its target allocation, you are considering a rebalancing strategy.

While contemplating this rebalance, you take into account the transaction costs associated with buying and selling securities. These costs can include brokerage fees, bid-ask spreads, and market impact. You are particularly concerned about minimizing these costs while ensuring that the portfolio reflects the intended risk-return profile.

Which of the following factors is likely to have the greatest impact on transaction costs when rebalancing the portfolio?