Portfolio size, non-trading frequency and portfolio return autocorrelation

Chelley-Steeley, Patricia L. and Steeley, James M. (2014). Portfolio size, non-trading frequency and portfolio return autocorrelation. Journal of International Financial Markets, Institutions and Money, 33 (1), pp. 56-77.

Abstract

In this paper we re-examine the relationship between non-trading frequency and portfolio return autocorrelation. We show that in portfolios where security specific effects have not been completely diversified, portfolio autocorrelation will not increase monotonically with increasing non-trading, as indicated in Lo and MacKinlay (1990). We show that at high levels of non-trading, portfolio autocorrelation will become a decreasing function of non-trading probability and may take negative values. We find that heterogeneity among the means, variances and betas of the component securities in a portfolio can act to increase the induced autocorrelation, particularly in portfolios containing fewer stocks. Security specific effects remain even when the number of securities in the portfolio is far in excess of that considered necessary to diversify security risk.

Publication DOI: https://doi.org/10.1016/j.intfin.2014.07.001
Divisions: Aston Business School > Accounting
Aston Business School > Economics finance & entrepreneurship
Aston Business School
Additional Information: NOTICE: this is the author’s version of a work that was accepted for publication in Journal of international financial markets. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Chelley-Steeley, P. L., & Steeley, J. M. Portfolio size, non-trading frequency and portfolio return autocorrelation. Journal of international financial markets, institutions and money. Vol. 33 (2014) DOI http://dx.doi.org/10.1016/j.intfin.2014.07.001
Uncontrolled Keywords: diversification,non-trading,portfolio return autocorrelation,Economics and Econometrics,Finance
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Related URLs: http://www.scop ... tnerID=8YFLogxK (Scopus URL)
Published Date: 2014-11
Authors: Chelley-Steeley, Patricia L.
Steeley, James M. ( 0000-0003-0345-5089)

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