Multiperiod portfolio optimization with multiple risky assets and general transaction costs

Xiaoling Mei, Victor DeMiguel and Francisco J. Nogales

Journal of Banking & Finance, 2016, vol. 69, issue C, 108-120

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.

Keywords: Portfolio optimization; Multiperiod utility; No-trade region; Market impact (search for similar items in EconPapers)
JEL-codes: G11 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:69:y:2016:i:c:p:108-120

DOI: 10.1016/j.jbankfin.2016.04.002

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