Multiperiod portfolio optimization with multiple risky assets and general transaction costs

Mei, X and DeMiguel, V and Nogales, F (2016) Multiperiod portfolio optimization with multiple risky assets and general transaction costs. Journal of Banking & Finance, 69 (August). pp. 108-120.

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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.

Item Type: Article
Additional Information: © 2016 Elsevier
Subjects: P > Portfolio investment
Subject Areas: Management Science and Operations
DOI: 10.1016/j.jbankfin.2016.04.002
Date Deposited: 17 May 2016 18:05
Last Modified: 28 Oct 2017 00:01
URI: http://lbsresearch.london.edu/id/eprint/199

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