Work

Multiperiod portfolio optimization with multiple risky assets and general transaction costs

Year: 2016

Type: article

Abstract: We analyze the optimal portfolio policy for a multiperiod mean–variance investor facing multiple risky assets in the presence of general transaction costs. For proportional transaction costs, we give a closed-form expression for a no-trade region, shaped as a multi-dimensional parallelogram, and show how the optimal portfolio policy can be efficiently computed for many risky assets by solving a single quadratic program. For market impact costs, we show that at each period it is optimal to trade to the boundary of a state-dependent rebalancing region. Finally, we show empirically that the losses associated with ignoring transaction costs and behaving myopically may be large.

Source: Journal of Banking & Finance

DOI: 10.1016/j.jbankfin.2016.04.002

Authors: Xiaoling Mei, Victor DeMiguel, Francisco J. Nogales

Institutions: Xiamen University, London Business School, Universidad Carlos III de Madrid

Language: English

Topic: Risk and Portfolio Optimization

Subfield: Management Science and Operations Research

Field: Decision Sciences

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $3,340

OpenAlex ID: W3124645321

FWCI: 6.938

Cites: 30

Cited by: 55

Related to: 10