OmniVest Forum OmniVest Forum
forums calendars search
today this week
 
register logon control panel Forum Rules
You are currently browsing as a guest.
You should logon to access more features
A Self-Moderated Community - ALL MEMBERS, PLEASE READ!
Vote for Members who contribute the most to your trading, and help us moderate content within the Forums.


[Random Quote] -


Only Forum Moderators, Administrators, and the owner of this message may delete it.

 
Steve2

Elite
5001001002525
Posts: 750

Joined: 10/11/2012
Location: Annapolis, MD

User Profile
 
Subject : RE: 28 days of October - Part 2
Posted : 12/2/2014 4:29 PM
Post #34567 - In reply to #34565

Hi Keith,

The other big source of variability in portfolio performance is equity constraints. These can cause a large ripple effect through the trade history that extends well beyond the difference in starting and ending dates. For example, in the 23 strategy static portfolio I posted in your first thread on this topic, I compared the trade histories on two consecutive days to identify the number of different positions held during the 6 year simulation period. For this analysis, I first assumed that a position matched if the starting date, ending date, and symbol matched. This showed that there were 391 different positions held between the two trade histories. This is way more than the 12 positions that one might have expected based on TPM and the one day difference in starting and ending dates. This is all due to how trades are filtered out or not filtered out due to equity constraints. If one adds number of shares to the matching criteria then there were a whopping 5,544 positions that didn't match. This, of course, is due to the difference in daily account values between the two simulations.

One can effectively remove the impact of equity constraints in a simulation by increasing Buying Power to a very high number. I did this for these simulations and found that it reduced variation in daily ending equity by about 50%. So for this one set of examples, it appears that 50% of the variation is caused by equity constraints and 50% by compounding effects related to the difference in starting and ending positions.

Since a dynamic portfolio is just a set of static portfolios strung together, I think that account equity constraints are a significant cause of variability and I wonder if there is truly a predictive way to periodically re-balance strategies to achieve higher returns without running a large number of simulations and looking at the distribution of returns (which is what I think you and Steve Mayo are saying).

Steve



[Edited by Steve2 on 12/2/2014 4:34 PM]

Deleting message 34567 : RE: 28 days of October - Part 2


Nirvana Systems
For any problems or issues please contact our Webmaster at webmaster@nirvsys.com.