Post #3333 by mungofitch on the Mechanical Investing board

Investment Strategies / Mechanical Investing ❤

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There are some interesting research papers that estimate cost basis based on the past trajectory of price and volume, with the hugely simplifying assumption that any given share is equally likely to be sold on any given date.

This sounds like an unreasonable assumption, but it gives some interesting predictions which have been verified, for example that, in combination with the disposition effect, it seems to explain the fact that turnover ratio correlates with the optimum momentum holding period. (higher turnover ratio, lower optimum momentum lookback)

This is a bit of a side track, but it is an available formula for estimating average cost basis.

Jim

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