Trading-profit attribution for the size factor

TL;DR

This paper applies a trading-profit attribution algorithm to analyze the size factor in investment strategies, using equal-weighted portfolios within Stochastic Portfolio Theory to understand the contribution of systematic rebalancing.

Contribution

It introduces an application of a recent trading-profit attribution algorithm to the size factor, providing insights into rebalancing contributions within a theoretical framework.

Findings

Quantifies the trading-profit contribution of size factor strategies.

Demonstrates the effectiveness of the attribution algorithm on equal-weighted portfolios.

Provides a theoretical understanding of rebalancing effects in size factor investing.

Abstract

An algorithm was recently introduced by INTECH for the purposes of estimating the trading-profit contribution of systematic rebalancing to the relative return of rules-based investment strategies. We apply this methodology to analyze the size factor through the use of equal-weighted portfolios. These strategies combine a natural exposure to the size factor with a simple understanding within the framework of Stochastic Portfolio Theory, furnishing a natural test subject for the attribution algorithm.