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No-transaction bounds and estimation risk

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  • Vasyl Golosnoy

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.

Suggested Citation

  • Vasyl Golosnoy, 2010. "No-transaction bounds and estimation risk," Quantitative Finance, Taylor & Francis Journals, vol. 10(5), pages 487-493.
    • Handle: RePEc:taf:quantf:v:10:y:2010:i:5:p:487-493
    DOI: 10.1080/14697680903067104
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    References listed on IDEAS

    as
    1. Zhenyu Wang, 2005. "A Shrinkage Approach to Model Uncertainty and Asset Allocation," The Review of Financial Studies, Society for Financial Studies, vol. 18(2), pages 673-705.
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