Download This PaperPerformance v. Turnover: A Story by 4,000 Alphas
The Journal of Investment Strategies 5(2) (2016) 75-89, Invited Investment Strategy Forum Paper
17 Pages Posted: 10 Sep 2015 Last revised: 22 Mar 2016
Date Written: September 7, 2015
Abstract
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 portfolio return R has no statistically significant dependence on the turnover T. We also find a scaling R ~ V^X, where V is the portfolio volatility, and the power X is around 0.8-0.85 for holding periods up to 10 days or so. To our knowledge, this is the only publicly available empirical study on such a large number of real-life trading portfolios/alphas.
Keywords: performance, turnover, return, alpha, hedge fund, portfolio, cents-per-share, volatility, P&L, equities, quantitative trading, empirical analysis
JEL Classification: G00
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