Portfolio Management

New submissions

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New submissions for Mon, 20 May 24

[1]  arXiv:2405.10917 [pdf, ps, other]

Title: Is the annualized compounded return of Medallion over 35%?

Authors: Shuxin Guo, Qiang Liu

Comments: 9 pages, 2 tables

Subjects: Portfolio Management (q-fin.PM); General Finance (q-fin.GN); Risk Management (q-fin.RM)

It is a challenge to estimate fund performance by compounded returns. Arguably, it is incorrect to use yearly returns directly for compounding, with reported annualized return of above 60% for Medallion for the 31 years up to 2018. We propose an estimation based on fund sizes and trading profits and obtain a compounded return of 32.6% before fees with a 3% financing rate. Alternatively, we suggest using the manager's wealth as a proxy and arriving at a compounded growth rate of 25.6% for Simons for the 33 years up to 2020. We conclude that the annualized compounded return of Medallion before fees is probably under 35%. Our findings have implications for how to compute fund performance correctly.

Cross-lists for Mon, 20 May 24

[2]  arXiv:2405.10920 (cross-list from q-fin.GN) [pdf, ps, other]

Title: Data-generating process and time-series asset pricing

Authors: Shuxin Guo, Qiang Liu

Comments: 43 pages, 9 tables, 1 figure

Subjects: General Finance (q-fin.GN); Portfolio Management (q-fin.PM); Risk Management (q-fin.RM)

We study the data-generating processes for factors expressed in return differences, which the literature on time-series asset pricing seems to have overlooked. For the factors' data-generating processes or long-short zero-cost portfolios, a meaningful definition of returns is impossible; further, the compounded market factor (MF) significantly underestimates the return difference between the market and the risk-free rate compounded separately. Surprisingly, if MF were treated coercively as periodic-rebalancing long-short (i.e., the same as size and value), Fama-French three-factor (FF3) would be economically unattractive for lacking compounding and irrelevant for suffering from the small "size of an effect." Otherwise, FF3 might be misspecified if MF were buy-and-hold long-short. Finally, we show that OLS with net returns for single-index models leads to inflated alphas, exaggerated t-values, and overestimated Sharpe ratios (SR); worse, net returns may lead to pathological alphas and SRs. We propose defining factors (and SRs) with non-difference compound returns.

Replacements for Mon, 20 May 24

[3]  arXiv:2302.02269 (replaced) [pdf, other]

Title: A Modified CTGAN-Plus-Features Based Method for Optimal Asset Allocation

Authors: José-Manuel Peña, Fernando Suárez, Omar Larré, Domingo Ramírez, Arturo Cifuentes

Comments: In figures 3 and 4, the labels "Synthetic'' and "Original'' were swapped. Now these figures have the correct labels. Results unchanged

Subjects: Portfolio Management (q-fin.PM); Computational Engineering, Finance, and Science (cs.CE)

[4]  arXiv:2303.07158 (replaced) [pdf, other]

Title: Uniform Pessimistic Risk and its Optimal Portfolio

Authors: Sungchul Hong, Jong-June Jeon

Subjects: Portfolio Management (q-fin.PM); Machine Learning (cs.LG); Computation (stat.CO); Machine Learning (stat.ML)

[5]  arXiv:2303.07158 (replaced) [pdf, other]

Title: Uniform Pessimistic Risk and its Optimal Portfolio

Authors: Sungchul Hong, Jong-June Jeon

Subjects: Portfolio Management (q-fin.PM); Machine Learning (cs.LG); Computation (stat.CO); Machine Learning (stat.ML)

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