Dealing with high turnover ranking factors

Research
1

Dear all,

I’ve been researching ranking factors and found that many of them (mostly technical indicators) have high performance in a 16y backtest with weekly rebalance without any transaction costs (slippage and comission) but their return turns negative when backtested with variable slippage and 0.5 cent per share comission due to very high turnover.

Examples:
AvgVol(10) / AvgVol(60) - 24.87% annual return without trading costs, -4.35% with trading costs, 2,479.17% annual turnover
SIRatio / SIRatioPM - 19.28% annual return without trading costs, -2.1% with trading costs, 1791.07% annual turnover
StochK(14) vs. Industry - 25.67% annual return without trading costs, -17.75% with trading costs, 4254.72% annual turnover
UpDownRatio(20,0) vs. Industry - 18.78% annual return without trading costs, -5.32% with trading costs, 2448.73% annual turnover

The universe used in the tests is Close(0) > 1, Vol > 100K, MktCap > 100M.

Here is what I have tried so far:

  • Increasing the period of the factor. It reduces the turnover and the trading costs, but most of the times it also reduces the indicator’s ability to find good stocks (the return is actually lower);
  • Increasing the rebalance period from 1 Week to 4 or 8 weeks, didn’t help;

Do you have any other ideas on how to use these factors and minimize turnover so our profit doesn’t get eaten by transaction costs?

Thank you.
Bruno

2

You can try using these in the buy/sell rules instead. Performance goes down but so does turnover.
BTW, you also missed this one: CurFYEPSMean-CurFYEPS8WkAgo

3

Thank you David. I’ll try it out!

4

These factors all are “bouncy” so there is no way that I know of to capture the theoretical return that you list above. Consider pairing them with lower turnover factors.

5

Thank you sgmd01.

6

brunos,

I have learned from p123 forum.

Use

  1. Fundamental factors for ranking and focus on top buckets (What to buy)
  2. Technical factors for When to buy and When to sell
  3. Market timing when to be in the market (like, bullish market, winter season, summer season, avoid bearish sectors, etc.,)
  4. Forward paper trade the real market by following step 1. to 3. for 6 months will get first-hand experience.
  5. continue to review Step 4 and learn until become successful.

Just, started to realize and learning 3, 4 & 5.

Thanks
Kumar

7

That’s some solid advice! Thanks Kumar