Download This PaperAn Anatomy of Characteristics in Dynamic Trading
47 Pages Posted: 2 Aug 2021
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: Suggested Citation
Matthew I. Spiegel
Yale University - Yale School of Management, International Center for Finance ( email )
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Hong Zhang (Contact Author)
Singapore Management University - Lee Kong Chian School of Business ( email )
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