Motivated by studies of the impact of frictions on asset prices, we examine the effect of key components of time-series momentum strategies on turnover and performance. We show that more efficient volatility estimation and price trend detection can significantly reduce portfolio turnover by more...

The tournament hypothesis of Brown et al. (1996) conjectures that mutual funds with a below average performance over the first half of the year tend to increase their risk in the second half of the year. Schwarz (2012) argues that the methodologies that have been used to test this hypothesis are...

The sample covariance matrix is known to contain substantial statistical noise, making it inappropriate for use in financial decision making. Leading researchers have proposed various filtering methods that attempt to reduce the level of noise in the covariance matrix estimator. In most cases,...

We divide hedging methods between single-period and multi-period. After reviewing some well-known hedging algorithms, two new procedures are introduced, called Dickey-Fuller Optimal (DFO), Mini-Max Subset Correlation (MMSC). The former is a multi-period, cointegration-based hedging method that...

This paper analyzes the implications of autoregressive betas in single factor models for the statistical properties of stock returns. It is demonstrated that this assumption alone is sufficient to account for the most important stylized facts of stock returns, namely conditional...

We analyze the economic benefits of several covariance estimation approaches on a tactical asset-allocation problem in the presence of high-frequency return data. Our analysis confirms that the use of robust-to-noise and asynchronicity estimators not only gives statistically more accurate...

Movements in expected returns (ER) can cause a bias in measured autocorrelations, and the resulting spurious component is positive for infrequent regime shifts. We demonstrate this point analytically and investigate its empirical prevalence. In a key contribution, we use shifts in ex ante ER...