Large-Scale Portfolio Allocation Under Transaction Costs and Model Uncertainty

Publikation: Wissenschaftliche FachzeitschriftOriginalbeitrag in FachzeitschriftBegutachtung

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Abstract

We theoretically and empirically study portfolio optimization under transaction costs and establish a link between turnover penalization and covariance shrinkage with the penalization governed by transaction costs. We show how the ex ante incorporation of transaction costs shifts optimal portfolios towards regularized versions of efficient allocations. The regulatory effect of transaction costs is studied in an econometric setting incorporating parameter uncertainty and optimally combining predictive distributions resulting from high-frequency and low-frequency data. In an extensive empirical study, we illustrate that turnover penalization is more effective than commonly employed shrinkage methods and is crucial in order to construct empirically well-performing portfolios.
OriginalspracheEnglisch
Seiten (von - bis)221 - 240
FachzeitschriftJournal of Econometrics
Jahrgang212
Ausgabenummer1
DOIs
PublikationsstatusVeröffentlicht - 2019

Österreichische Systematik der Wissenschaftszweige (ÖFOS)

  • 502010 Finanzwissenschaft
  • 502025 Ökonometrie

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