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An examination of the benefits of dynamic trading strategies in U.K. closed-end funds

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  • Fletcher, Jonathan
  • Basu, Devraj

Abstract

We examine the after-cost out-of-sample performance of the unconditional mean–variance (UMV) strategy in the presence of conditioning information (Ferson and Siegel (2001)) using portfolios of U.K. equity closed-end funds. We find that the performance of the UMV strategy significantly improves when using lagged information variables with the highest persistence (first-order autocorrelation) levels and reduces turnover. This strategy is able to outperform alternative dynamic trading strategies and performs well across different subperiods. At low levels of trading costs, the UMV strategy is able to deliver significant value added to investors.

Suggested Citation

  • Fletcher, Jonathan & Basu, Devraj, 2016. "An examination of the benefits of dynamic trading strategies in U.K. closed-end funds," International Review of Financial Analysis, Elsevier, vol. 47(C), pages 109-118.
    • Handle: RePEc:eee:finana:v:47:y:2016:i:c:p:109-118
    DOI: 10.1016/j.irfa.2016.04.012
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    More about this item

    Keywords

    Mean–variance analysis; Dynamic trading strategies; Closed-end funds;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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