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Portfolio Turnover, Trading Costs, Returns, and Volatility Across 4,000 Alphas

Article arXiv papers · Author: Zura Kakushadze et al.
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Summary

This study analyzes 4,000 real-life U.S. equity trading portfolios with holding periods of roughly 0.7 to 19 trading days. It reports that cents per share scale inversely with portfolio turnover, while portfolio returns show no statistically significant dependence on turnover. The result challenges a simple assumption that higher-turnover portfolios necessarily have lower returns, though the excerpt does not detail how transaction costs enter the reported relationships.

The study also finds that returns scale with portfolio volatility raised to a power of about 0.8 to 0.85 for holding periods up to around 10 days. These empirical relationships are drawn from a large set of live portfolios and alphas, but the summary provides no sampling, estimation, or robustness details. The observed associations therefore describe the analyzed portfolio set and do not establish that turnover or volatility causes performance outcomes.

Key ideas

  • The analysis covers 4,000 real-life U.S. equity portfolios with short holding periods.
  • Cents per share scale inversely with portfolio turnover in the reported data.
  • Portfolio returns have no statistically significant dependence on turnover in the sample.
  • Returns scale with portfolio volatility to a power near 0.8 to 0.85 for holding periods up to about 10 days.
  • The excerpt reports empirical associations but does not provide robustness or causal evidence.

Tags

EquitiesStatisticsExecutionBacktesting
Full text
# Performance v. Turnover: A Story by 4,000 Alphas


# Performance v. Turnover: A Story by 4,000 Alphas









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.

Shown in full with attribution under the source's licence. Licence: abstract CC0

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.