Infrequent Rebalancing, Return Autocorrelation, and Seasonality

A model of infrequent rebalancing can explain specific predictability patterns in the time series and cross-section of stock returns. First, infrequent rebalancing produces return autocorrelations that are consistent with empirical evidence from intraday returns and new evidence from daily returns. Autocorrelations can switch sign and become positive at the rebalancing horizon. Second, the cross-sectional variance in expected returns is larger when more traders rebalance. This effect generates seasonality in the cross-section of stock returns, which can help explain available empirical evidence.


Published in:
Journal Of Finance, 71, 6, 2967-3006
Year:
2016
Publisher:
Hoboken, Wiley-Blackwell
ISSN:
0022-1082
Laboratories:




 Record created 2017-01-24, last modified 2018-01-28


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