"Change in rank" as a factor

All,

One topic that has been discussed in the forum several times is the change in rank of a stock.

For example, for a given ranking system, a stock’s rank increases from 75 to 95 between rebalance periods, or any other period.

Using rules to purchase stocks with improved rank is a great idea. The only issue I have seen is that this also increases turnover, at times substantially.

For example, take a simple buy and hold of the top decile of the “Core: Growth” ranking system, rebalance monthly. Turnover in the neighbourhood of 16%.

Repeat, but include rule buying only those stocks who’s ranks have improved, say RankPrev(0) > RankPrev(4). Turnover increases to 61%! With any reasonable slippage and frictional costs, I have found that the strategy cannot beat a simple buy and hold.

If you up the bar and specify higher rates of change in rank, t/o increases.

Anyone have any experience with this idea, ways to reduce turnover?

Thanks in advance.

Cheers,
Ryan

Yes I use rank momentum systems im my system book.
All Small cap stuff.

Very selective systems, most are in cash now, because they can not find rank momentum + EPS upward revisions.
Built in market timing!

Try to use short term reversal in your ranking system (Add it to your ranking system).

Pr4W%Chg (up on industry)
Pr4W%Chg (down on stock)

I got some interesting results with rank momentum + short term reversal ranking stuff.

Thanks Andreas. I was looking more at screens as you can track the “rankpos” in screens, but not in ranking systems.

In ranking systems, you look at the change in the factor, not necessarily the rank change? For example, P/E of 8 four weeks ago, P/E of 4 today? You wouldn’t need rank pos here, just change in absolute value of the factor. I’ve played with this somewhat, but I like the rankpos change, just ends up being very high turnover.

Will take a closer look at using in ranking system.

Thanks,
Ryan

I use something like this in the buy rule… RankPrev(1)/RankPrev(0) < 0.95

Thanks Andreas. I’ve also been playing with something Denny shared a few years ago:
Buy: Rank > RankPrev(4)
Sell: Rank < RankPrev(4) -1 (the -1 prevents sells on minor moves only)