Consider two statistically identical strategies (identical information ratios, sample size, ratio of transaction costs to total profit, etc.) except that one has a much shorter average holding period. Is there a statistical reason to favor one over the other?
At first blush, it would appear the statistical confidence in the expected return to the two strategies is identical. One way to measure statistical confidence is to regress the P&L time-series on a constant and examine the t-statistic. Using OLS, these two strategies would yield identical t-stats. However, the longer holding period strategy may be expected to have greater serial correlation, and so perhaps we should adjust the standard errors. Of course, even short horizon strategies can display autocorrelation in P&L beyond the holding period, so perhaps this is not a reason to prefer one over another.
My intuition says I should prefer the short holding period strategy, but I have been unable to find a solid reason why, and in particular how I would measure the strength of this preference.
Note: This question is a follow-up to my previous question:
How much data is needed to validate a short-horizon trading strategy?