No. of Recommendations: 7
A coupla random suggestions / comments
(1)
Do you know if GTR1 uses a Euclidian division rather than arithmetic division for the mod() operator? For example, as perl does.
In that case, both parameters are converted to integers before it does anything. In perl, for example (5 % 2) gives 1.
If it is Euclidian modulo, and your multipliers aren't big enough, you can get slight problems like a lot of things collapsing to the same value, and/or having (say) stocks with big prices more likely to be picked.
(2)
This appears to be a five year hold test?
Each hold 253 trading days, minimum hold 5 periods.
Two things--
(a)
Is there a reason/necessity for such a long hold to get the test you want?
For example, for a stock no longer in the index, you'll be holding it for up to several years after it is taken out. Maybe what you want, maybe not.
(b)
If you want a one year hold, I prefer "hold 21 days" / minimum 12 periods over "hold 252 days" (or 253) / minimum 1 period.
(GTR1 defaults to 253 trading days, but the average number of trading days in a year over time is generally close to 252, which divides very nicely)
The reason for the difference is that a buyout or delisting will get converted to cash and held till the end of the current holding period.
I believe the latter formulation will have a lot more cash, statistically, since the cash from any given transaction sits around longer before being "recycled" into new positions.
You might have to pick a suitable rebalance interval, measured in the different holding period size.
(3)
The most interesting thing I find from these exercises is how the dartboards did relative to a cap weight portfolio in the same interval, measured the same way.
If you do 100 dartboard portfolios, (and control trading costs at modern low-cost levels), how many outperform cap weight?
One study I read quoted 99 for their test.
The figure will likely vary based on whether you're considering the S&P 1500 or 500 or whatever.
In GTR1 you'd have to add something like a "marketcap > 0" step in the dartboard test, so make sure the same set of fields is populated and you get the same universe of eligible stocks.
Jim
