Portfolio symmetry and momentum
AbstractThis paper presents a novel theoretical framework to model the evolution of a dynamic portfolio (i.e., a portfolio whose weights vary over time), considering a given investment policy. The framework is based on graph theory and the quantum probability. Embedding the dynamics of a portfolio into a graph, each node of the graph representing a plausible portfolio, we provide the probabilities for a dynamic portfolio to lie on different nodes of the graph, characterizing its optimality in terms of returns. The framework embeds cross-sectional phenomena, such as the momentum effect, in stochastic processes, using portfolios instead of individual stocks. We apply our methodology to an investment policy similar to the momentum strategy of Jegadeesh and Titman (1993). We find that the strategy symmetry is a source of momentum.
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Bibliographic InfoArticle provided by Elsevier in its journal European Journal of Operational Research.
Volume (Year): 214 (2011)
Issue (Month): 3 (November)
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Web page: http://www.elsevier.com/locate/eor
(P) Finance Graph theory Momentum Quantum probability Spectral analysis;
Other versions of this item:
- Monica Billio & Ludovic Calès & Dominique Guegan, 2009. "Portfolio Symmetry and Momentum," Documents de travail du Centre d'Economie de la Sorbonne 09003, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne, revised Nov 2009.
- Monica Billio & Ludovic Calès & Dominique Guegan, 2009. "Portfolio Symmetry and Momentum," UniversitÃ© Paris1 PanthÃ©on-Sorbonne (Post-Print and Working Papers) halshs-00363383, HAL.
- Monica Billio & Ludovic Calès & Dominique Guegan, 2011. "Portfolio Symmetry and Momentum," UniversitÃ© Paris1 PanthÃ©on-Sorbonne (Post-Print and Working Papers) halshs-00645814, HAL.
- Monica Billio & Ludovic Calès & Dominique Guégan, 2009. "Portfolio Symmetry and Momentum," Working Papers 2009_05, Department of Economics, University of Venice "Ca' Foscari".
- C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
- C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jegadeesh, Narasimhan & Titman, Sheridan, 1993. " Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency," Journal of Finance, American Finance Association, vol. 48(1), pages 65-91, March.
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ysm36, Yale School of Management, revised 01 Feb 2008.
- Okunev, John & White, Derek, 2003. "Do Momentum-Based Strategies Still Work in Foreign Currency Markets?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(02), pages 425-447, June.
- Monica Billio & Ludovic Calès & Dominique Guegan, 2012. "Cross-Sectional Analysis through Rank-based Dynamic Portfolios," UniversitÃ© Paris1 PanthÃ©on-Sorbonne (Post-Print and Working Papers) halshs-00707430, HAL.
- Pätäri, Eero & Leivo, Timo & Honkapuro, Samuli, 2012. "Enhancement of equity portfolio performance using data envelopment analysis," European Journal of Operational Research, Elsevier, vol. 220(3), pages 786-797.
- Timo H. Leivo, 2012. "Combining value and momentum indicators in varying stock market conditions: The Finnish evidence," Review of Accounting and Finance, Emerald Group Publishing, vol. 11(4), pages 400-447.
- Monica Billio & Ludovic Calès & Dominique Guegan, 2012. "Cross-Sectional Analysis through Rank-based Dynamic," Documents de travail du Centre d'Economie de la Sorbonne 12036, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
- repec:hal:journl:halshs-00707430 is not listed on IDEAS
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