Starjournal Quotation Hautsch, Nikolaus, Voigt, Stefan. 2019. Large-Scale Portfolio Allocation Under Transaction Costs and Model Uncertainty. Journal of Econometrics. 212 (1), 221-240.


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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.

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Publication's profile

Status of publication Published
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 (Details)
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)
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