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Does removing the effect of short-term co-movements improve portfolio performance over monthly horizons? Dow Jones Industrial Average Analysis

Author

Listed:
  • Rafael B Chaves

    (Universidade Federal do Rio Grande do Sul)

  • Cleiton G Taufemback

    (Universidade Federal do Rio Grande do Sul)

  • Hudson S Torrent

    (Universidade Federal do Rio Grande do Sul)

Abstract

Portfolio strategies often seek to reduce exposure to short-term market fluctuations while maintaining robust performance over defined investment horizons. This study proposes a modification to the Markowitz model that filters out short-term co-movements in asset returns, aiming to construct portfolios less sensitive to transient fluctuations. Using historical data from the Dow Jones Industrial Average, we evaluate the performance of the proposed method relative to the traditional Markowitz and Naive models over investment horizons of one, three, and six months. The results indicate that portfolios constructed with the proposed approach generally outperform the benchmark models in terms of returns and exhibit statistically significant improvements in certain periods.

Suggested Citation

  • Rafael B Chaves & Cleiton G Taufemback & Hudson S Torrent, 2026. "Does removing the effect of short-term co-movements improve portfolio performance over monthly horizons? Dow Jones Industrial Average Analysis," Economics Bulletin, AccessEcon, vol. 46(1), pages 41-54.
    • Handle: RePEc:ebl:ecbull:eb-26-00332
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    References listed on IDEAS

    as
    1. Cleiton Guollo Taufemback, 2023. "Asymptotic Behavior of Temporal Aggregation in Mixed‐Frequency Datasets," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 85(4), pages 894-909, August.
    2. Christian Bongiorno & Efstratios Manolakis & Rosario Nunzio Mantegna, 2025. "End-to-End Large Portfolio Optimization for Variance Minimization with Neural Networks through Covariance Cleaning," Papers 2507.01918, arXiv.org, revised Apr 2026.
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      JEL classification:

      • G1 - Financial Economics - - General Financial Markets
      • C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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