Baker, Malcolm P.
[VerfasserIn]
;
Burnham, Terence
[Sonstige Person, Familie und Körperschaft];
Taliaferro, Ryan
[Sonstige Person, Familie und Körperschaft]
Anmerkungen:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments February 12, 2016 erstellt
Beschreibung:
We examine the optimal weighting of four characteristic tilts in US equity markets over the period from 1968 through 2014. We define a “tilt” as a positive-Sharpe-ratio, characteristic-based portfolio strategy that requires relatively low annual turnover and a “trade” as a characteristic-based portfolio strategy that requires relatively high annual turnover and liquidity demands. Size is a tilt, because of its very low turnover; high frequency reversal is a trade. This dichotomy is necessary to make practical use of Fama-French style factor regressions. Unlike low-turnover tilts, a full history of transaction costs and an estimate of capacity is critical to determine the expected return, and hence the optimal allocation and explanatory power of trades. The mean-variance optimal tilts toward value (20%), size (26%), and profitability (23%) are roughly equal to each other and to the optimal low beta tilt (24%). The remaining 7% is allocated to bond market factors. Notably, in an apples-to-apples comparison, the low beta tilt is not subsumed by other tilts. Rather, it is the second highest of the four