 Optimal Portfolio Rebalancing with Sweep Under Transaction CostMPRA Paper from University Library of Munich, Germany Abstract: This paper investigates the optimal portfolio rebalancing strategy for assets with cash distributions and proportional transaction costs. A sweep account is an account that is used as the default destination for coupon and dividend proceeds as they arrive. In this study, we incorporate this account and investigate the optimal strategy for the sweep account manager. Our results indicate that the "no-transaction" region is split into two sub-regions, where the cash proceeds are either invested entirely in the riskless asset or in the risky asset, depending on the transaction costs. Additionally, we analyze the impact of the assets' cash distributions and the investors' investment horizon on the demand for the assets. Our findings suggest that changes in the cash distribution of assets, depending on the relative magnitude of transaction costs for risky and riskless assets, can have a varying impact on asset demand. In particular, our results indicate that when the transaction cost for the riskless asset is low, an increase in the cash distributions from the risky asset and an increase in the investor's investment horizon have a positive impact on the liquidity premium of the risky asset. Keywords: Transaction cost; Sweep account; Liquidity premium; Portfolio optimization; Continuous-Time methods. (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:117162 Access Statistics for this paper More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC. |
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