No-transaction bounds and estimation risk

Vasyl Golosnoy

Quantitative Finance, 2010, vol. 10, issue 5, 487-493

Abstract: This paper considers a mean-variance portfolio investor facing proportional transaction costs and willing to account for estimation risk with a shrinkage approach. In such a situation the optimal portfolio policy can be characterized by no-transaction bounds existing both due to transaction cost and estimation risk effects. The paper derives analytically the optimal portfolio policy and provides a simulation study to illustrate the obtained results.

Keywords: Portfolio theory; Statistical methods; Econometric of financial markets; Financial markets (search for similar items in EconPapers)
Date: 2010
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DOI: 10.1080/14697680903067104

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