Portfolio selection with proportional transaction costs and predictability

Xiaoling Mei and Francisco Javier Nogales Martín

DES - Working Papers. Statistics and Econometrics. WS from Universidad Carlos III de Madrid. Departamento de Estadística

Abstract: We consider the portfolio optimization problem for a multiperiod investor who seeks to maximize her utility of consumption facing multiple risky assets and proportional transaction costs in the presence of return predictability. Due to the curse of dimensionality, this problem is very difficult to solve even numerically. In this paper, we propose several feasible policies that are based on optimizing quadratic programs. These proposed feasible policies can be easily computed even for many risky assets. We show how to compute upper bounds and use them to study how the losses associated with using the approximate policies depend on different problem parameters.

Keywords: Portfolio; optimization; Information; relaxations; Dynamic; portfolio; choice (search for similar items in EconPapers)
Date: 2015-11
New Economics Papers: this item is included in nep-upt
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:cte:wsrepe:ws1521

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