A Spectral Model of Turnover Reduction

Econometrics 3(3) (2015) 577-589

15 Pages Posted: 21 Apr 2014 Last revised: 7 Nov 2015

See all articles by Zura Kakushadze

Zura Kakushadze

Quantigic Solutions LLC; Free University of Tbilisi

Date Written: July 24, 2015

Abstract

We give a simple explicit formula for turnover reduction when a large number of alphas are traded on the same execution platform and trades are crossed internally. We model turnover reduction via alpha correlations. Then, for a large number of alphas, turnover reduction is related to the largest eigenvalue and the corresponding eigenvector of the alpha correlation matrix.

Keywords: hedge fund, alpha stream, crossing trades, transaction costs, portfolio turnover, correlation structure, large N limit

JEL Classification: G00

Suggested Citation

Kakushadze, Zura, A Spectral Model of Turnover Reduction (July 24, 2015). Econometrics 3(3) (2015) 577-589, Available at SSRN: https://ssrn.com/abstract=2427049 or http://dx.doi.org/10.2139/ssrn.2427049

Zura Kakushadze (Contact Author)

Quantigic Solutions LLC ( email )

680 E Main St #543
Stamford, CT 06901
United States
6462210440 (Phone)
6467923264 (Fax)

HOME PAGE: http://www.linkedin.com/in/zurakakushadze

Free University of Tbilisi ( email )

Business School and School of Physics
240, David Agmashenebeli Alley
Tbilisi, 0159
Georgia

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