Risk constraints for portfolio optimization with fixed-fee transaction cost

Michael J. Hirsch and Nicole Navarro

Journal of Investment Strategies

Abstract: Depending on the size of the initial investment, transaction costs are an important consideration when it comes to smartly investing money and growing a portfolio for retirement. In addition, different risk models significantly affect the growth rate of a portfolio. Many investment brokerages (eg, Fidelity, T. Rowe Price, etc) now employ fixed-fee transaction costs for individual investors. In this research, we investigate how fixed-fee transaction costs affect portfolio rebalancing. We use two risk measures, conditional value-at-risk and mean absolute deviation. Historical Standard & Poor’s 500 data is used for a computational study in which we compare the two risk measures and investigate how influential transaction costs are on the value of a portfolio at each investment opportunity.

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Persistent link: https://EconPapers.repec.org/RePEc:rsk:journ6:3916836

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