Timing Equity Quant Positions with Short-Horizon Alphas

Abstract

Many managers of long-horizon quantitative stock selection portfolios do not use short-horizon alpha signals because of the fast decay of these signals. The author demonstrates a simple tactical trade timing strategy that allows a long-horizon manager to take advantage of short-horizon alphas without incurring additional transaction costs. He shows that the strategy’s value added is consistent across time and capitalization groups and does not affect the portfolio’s risk exposures.