An Anatomy of Characteristics in Dynamic Trading

47 Pages Posted: 2 Aug 2021

See all articles by Tao Huang

Tao Huang

BNU-HKBU United International College

Matthew I. Spiegel

Yale University - Yale School of Management, International Center for Finance

Hong Zhang

Singapore Management University - Lee Kong Chian School of Business

Date Written: July 30, 2021

Abstract

We propose testing the joint and marginal power of characteristics in predicting returns via a dynamic trading strategy (e.g., Kyle, 1985). The analysis finds that most characteristics (88%) fail to supply independent information. Indeed, removing these subsumed characteristics significantly enhances the optimal portfolio returns. Our analysis further reveals a leading role played by Fama-French-Carhart factors as informative characteristics.

Keywords: Anomalies; Dynamic trading; Informative characteristics

JEL Classification: G12; G14

Suggested Citation

Huang, Tao and Spiegel, Matthew I. and Zhang, Hong, An Anatomy of Characteristics in Dynamic Trading (July 30, 2021). Available at SSRN: https://ssrn.com/abstract=3896367 or http://dx.doi.org/10.2139/ssrn.3896367

Tao Huang

BNU-HKBU United International College ( email )

China

Matthew I. Spiegel

Yale University - Yale School of Management, International Center for Finance ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-6017 (Phone)
203-432-8931 (Fax)

HOME PAGE: http://som.yale.edu/~spiegel

Hong Zhang (Contact Author)

Singapore Management University - Lee Kong Chian School of Business ( email )

50 STAMFORD ROAD
Office 4087, Lee Kong Chian School of Bu
Singapore, 178899
Singapore

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