Seminar of the Thematic Project

Seminar of the Thematic project (2023/01728-0) Econometric Modeling and Forecasting in High-Dimensional Models (HDEM&For)

Speaker: Marcelo C. Medeiros (Jorge Paulo Lemann Professor of Economics – UIUC)

Cost-aware Portfolios in a Large Universe of Assets

Abstract:

This paper considers the short-term 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 with the optimization problem in a high-dimensional portfolio setting where the number of assets is even larger than the sample size. We propose new cost-aware portfolios and show the desired theoretical properties. Monte Carlo simulations and empirical studies using SP 500 and Russell 3000 stocks show the satisfactory performance of the proposed portfolio.

Type: Online