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Taliaferro, Ryan

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Taliaferro

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Taliaferro, Ryan

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    Optimal Tilts: Combining Persistent Characteristic Portfolios
    (Informa UK Limited, 2017-10) Baker, Malcolm; Taliaferro, Ryan; Burnham, Terence
    We examine the optimal weighting of four tilts in U.S. equity markets from 1968 through 2014. We define a “tilt” as a characteristic-based portfolio strategy that requires relatively low annual turnover. This is a continuum, with small size (a very persistent characteristic) at one end of the spectrum and high frequency reversal at the other. Unlike low-turnover tilts, a full history of transaction costs is essential for determining the expected return of, and hence the optimal allocation to, less persistent, more turnover-intensive characteristics. The mean-variance optimal tilts toward value, size, and profitability are roughly equal to each other and equal to the optimal low-beta tilt. Notably, the low-beta tilt is not subsumed by the other three.