Multiperiod portfolio optimization with multiple risky assets and general transaction costs

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

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.

More Details

Item Type: Article
Subject Areas: Management Science and Operations
Additional Information: © 2016 Elsevier. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0
Subjects: P > Portfolio investment
Date Deposited: 17 May 2016 18:05
Last Modified: 12 Nov 2018 14:47
URI: http://lbsresearch.london.edu/id/eprint/199
More

Export and Share


Download

Accepted Version - Text
  • Available under License

Statistics

Altmetrics

Downloads from LBS Research Online

View details

Actions (login required)

Edit Item Edit Item