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Infrequent Rebalancing, Return Autocorrelation, and Seasonality
Author(s) -
BOGOUSSLAVSKY VINCENT
Publication year - 2016
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/jofi.12436
Subject(s) - predictability , autocorrelation , econometrics , stock (firearms) , seasonality , economics , empirical evidence , sign (mathematics) , financial economics , statistics , mathematics , geography , philosophy , archaeology , epistemology , mathematical analysis
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.