Hautsch, Nikolaus, Voigt, Stefan. 2019. Large-Scale Portfolio Allocation Under Transaction Costs and Model Uncertainty. Journal of Econometrics. 212 (1), 221-240.
BibTeX
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.
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Status of publication | Published |
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Affiliation | WU |
Type of publication | Journal article |
Journal | Journal of Econometrics |
Citation Index | SSCI |
WU Journalrating 2009 | A+ |
Starjournal | Y |
Language | English |
Title | Large-Scale Portfolio Allocation Under Transaction Costs and Model Uncertainty |
Volume | 212 |
Number | 1 |
Year | 2019 |
Page from | 221 |
Page to | 240 |
Reviewed? | Y |
URL | https://doi.org/10.1016/j.jeconom.2019.04.028 |
DOI | https://doi.org/10.1016/j.jeconom.2019.04.028 |
Open Access | N |
JEL | C11, C52, C58, G11 |
Associations
- People
- Voigt, Stefan (Former researcher)
- External
- Hautsch, Nikolaus (University of Vienna, Austria)
- Organization
- Institute for Financial Research IN (Details)
- Research areas (Ă–STAT Classification 'Statistik Austria')
- 5311 Public finance (Details)
- 5323 Econometrics (Details)