IDEAS home Printed from https://ideas.repec.org/p/arx/papers/2412.11575.html
   My bibliography  Save this paper

Cost-aware Portfolios in a Large Universe of Assets

Author

Listed:
  • Qingliang Fan
  • Marcelo C. Medeiros
  • Hanming Yang
  • Songshan Yang

Abstract

This paper considers the finite horizon portfolio rebalancing problem in terms of mean-variance optimization, where decisions are made based on current information on asset returns and transaction costs. The study's novelty is that the transaction costs are integrated within the optimization problem in a high-dimensional portfolio setting where the number of assets is larger than the sample size. We propose portfolio construction and rebalancing models with nonconvex penalty considering two types of transaction cost, the proportional transaction cost and the quadratic transaction cost. We establish the desired theoretical properties under mild regularity conditions. Monte Carlo simulations and empirical studies using S&P 500 and Russell 2000 stocks show the satisfactory performance of the proposed portfolio and highlight the importance of involving the transaction costs when rebalancing a portfolio.

Suggested Citation

  • Qingliang Fan & Marcelo C. Medeiros & Hanming Yang & Songshan Yang, 2024. "Cost-aware Portfolios in a Large Universe of Assets," Papers 2412.11575, arXiv.org.
  • Handle: RePEc:arx:papers:2412.11575
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/2412.11575
    File Function: Latest version
    Download Restriction: no
    ---><---

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:2412.11575. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.