Related papers: Can Turnover Go to Zero?
It is well known that combining multiple hedge fund alpha streams yields diversification benefits to the resultant portfolio. Additionally, crossing trades between different alpha streams reduces transaction costs. As the number of alpha…
We discuss investment allocation to multiple alpha streams traded on the same execution platform with internal crossing of trades and point out differences with allocating investment when alpha streams are traded on separate execution…
In these notes we discuss investment allocation to multiple alpha streams traded on the same execution platform, including when trades are crossed internally resulting in turnover reduction. We discuss approaches to alpha weight…
An investment portfolio consists of $n$ algorithmic trading strategies, which generate vectors of positions in trading assets. Sign opposite trades (buy/sell) cross each other as strategies are combined in a portfolio. Then portfolio…
We give an explicit algorithm and source code for combining alpha streams via bounded regression. In practical applications typically there is insufficient history to compute a sample covariance matrix (SCM) for a large number of alphas. To…
We propose a framework for constructing factor models for alpha streams. Our motivation is threefold. 1) When the number of alphas is large, the sample covariance matrix is singular. 2) Its out-of-sample stability is challenging. 3)…
We analyze empirical data for 4,000 real-life trading portfolios (U.S. equities) with holding periods of about 0.7-19 trading days. We find a simple scaling C ~ 1/T, where C is cents-per-share, and T is the portfolio turnover. Thus, the…
The steady-state turnover of a trading strategy is of clear interest to practitioners and portfolio managers, as is the steady-state Sharpe ratio. In this article, we show that in a convenient Gaussian process model, the steady-state…
We theoretically and empirically study portfolio optimization under transaction costs and establish a link between turnover penalization and covariance shrinkage with the penalization governed by transaction costs. We show how the ex ante…
We consider a two-way trading problem, where investors buy and sell a stock whose price moves within a certain range. Naturally they want to maximize their profit. Investors can perform up to $k$ trades, where each trade must involve the…
This work discusses the benefits of constrained portfolio turnover strategies for small to medium-sized portfolios. We propose a dynamic multi-period model that aims to minimize transaction costs and maximize terminal wealth levels whilst…
We prove central limit theorems for the number of descents and the number of inversions after a shelf-shuffle. In particular, we bound the convergence rate for the number of inversions independently of the number of shelves. Along the way,…
We have designed an innovative portfolio rebalancing mechanism termed the Cascading Waterfall Round Robin Mechanism. This algorithmic approach recommends an ideal size and number of trades for each asset during the periodic rebalancing…
We consider the multi-period portfolio optimization problem with a single asset that can be held long or short. Due to the presence of transaction costs, maximizing the immediate reward at each period may prove detrimental, as frequent…
We study the tunneling through delta and double delta potentials in fractional quantum mechanics. After solving the fractional Schr\"odinger equation for these potentials, we calculate the corresponding reflection and transmission…
We revisit optimal execution of an active portfolio in the presence of slippage (aka linear, proportional, or absolute-value) costs. Market efficiency implies a close balance between active alphas and trading costs, so even small changes to…
Nonlinear time series models with exogenous regressors are essential in econometrics, queuing theory, and machine learning, though their statistical analysis remains incomplete. Key results, such as the law of large numbers and the…
Throttling in graphs optimizes a sum or product of resources used, such as the number of vertices in an initial set, and time required, such as the propagation time, to complete a given task. We introduce a new technique to establish sharp…
We give an explicit algorithm and source code for extracting equity risk factors from dead (a.k.a. "flatlined" or "hockey-stick") alphas and using them to improve performance characteristics of good (tradable) alphas. In a nutshell, we use…
This paper focuses on an infinite-server queue modulated by an independently evolving finite-state Markovian background process, with transition rate matrix $Q\equiv(q_{ij})_{i,j=1}^d$. Both arrival rates and service rates are depending on…