Beyond Fama-French Factors: Alpha from Short-Term Signals
Financial Analysts Journal, Forthcoming
36 Pages Posted: 1 Jun 2022 Last revised: 25 Jan 2023
Date Written: December 23, 2022
Short-term alpha signals are generally dismissed in traditional asset pricing models, primarily due to market friction concerns. However, this paper demonstrates that investors can obtain a significant net alpha by applying a combination of signals to a liquid global universe and with advanced buy/sell trading rules that mitigate transaction costs. The composite model consists of short-term reversal, short-term momentum, short-term analyst revisions, short-term risk, and monthly seasonality signals. The resulting alpha is present in out-of-sample and post-publication periods, across regions, translates into long-only applications, is robust to incorporating implementation lags of several days, and is uncorrelated to traditional Fama-French factors.
Keywords: short-term signals, market frictions, portfolio construction, transaction costs, investments, market efficiency
JEL Classification: G11, G12, G14
Suggested Citation: Suggested Citation