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Leakage of rank-dependent functionally generated trading strategies

Xie, K; (2020) Leakage of rank-dependent functionally generated trading strategies. Annals of Finance , 16 pp. 573-591. 10.1007/s10436-020-00364-2. Green open access

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Abstract

This paper investigates the so-called leakage effect of trading strategies generated functionally from rank-dependent portfolio generating functions. This effect measures the loss in wealth of trading strategies due to renewing the portfolio constituent stocks. Theoretically, the leakage effect of a trading strategy is expressed explicitly by a finite-variation term. The computation of the leakage is different from what previous research has suggested. The method to estimate leakage in discrete time is then introduced with some practical considerations. An empirical example illustrates the leakage of the corresponding trading strategies under different constituent list sizes.

Type: Article
Title: Leakage of rank-dependent functionally generated trading strategies
Open access status: An open access version is available from UCL Discovery
DOI: 10.1007/s10436-020-00364-2
Publisher version: https://doi.org/10.1007/s10436-020-00364-2
Language: English
Additional information: © The Author(s) 2020. This article is licensed under a Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/).
Keywords: Additive generation, Leakage effect, Multiplicative generation Portfolio analysis, Rank-dependent portfolio generating function, Stochastic portfolio theory
UCL classification: UCL
UCL > Provost and Vice Provost Offices
UCL > Provost and Vice Provost Offices > UCL BEAMS
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Maths and Physical Sciences
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Maths and Physical Sciences > Dept of Mathematics
URI: https://discovery.ucl.ac.uk/id/eprint/10108381
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