The impact of transaction costs in portfolio optimization: A comparative analysis between the cost of trading in Peru and the United States

Luc Chavalle and Luis Chavez-Bedoya
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Luc Chavalle: IESEG School of Management, Paris, France
Luis Chavez-Bedoya: Universidad ESAN, Lima, Peru

Journal of Economics, Finance and Administrative Science, 2019, vol. 24, issue 48, 288-311

Abstract: This paper aims to analyze the impact of transaction costs in portfolio optimization in Peru. The study aims to compare the transaction costs structure applied in Peru with respect to the ones applied in the USA, and over a few dimensions. The paper provides empirical insights about how a retail investor actively trading in Peru can pay up to 14 times more in transaction costs than trading the same portfolio in the USA. These comparatively high transaction costs prevent retail investors to trade in the Peruvian stock market while fueling illiquidity to this market. The paper includes implications for any retail investor that wants to invest in Peruvian stocks, giving an insight about how expensive it is to actively rebalance a portfolio in Peru.

Keywords: Transaction costs; Portfolio optimization; Portfolio turnover (search for similar items in EconPapers)
JEL-codes: G11 G12 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:ris:joefas:0150

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