Oct. 8, 2020
In the notebook, random return series were generated using a normal distribution with a 3% standard deviation over 1, 2, 5, 10, and 20 years to show the impact of trading over the long term. Such a strategy will breakdown over time. In the beginning, it might not be that visible, but as the time interval increases, it becomes more and more apparent since return degradation is technically built-in.
Some alpha is then added to the mix to compensate for the strategy's breakdown as part of the available compensation measures. The impact is shown to be considerable over the long term even with a small alpha.
In the notebook, you can run the program and change the initial settings. Do some tests, especially with a long-term horizon.
This presentation is based on the portfolio payoff matrix as I've discussed before. See, for instance, my posts in the following threads should you wish to dig deeper or some of my recent articles on my website.
Link to notebook On Quantopian: Playing a Long-Term Game
Oct. 8, 2020, © Guy R. Fleury. All rights reserved.