Event Date
Speaker: Marcelo C. Medeiros, Professor, Dept of Economics, University of Illinois Urbana-Champaign
Title: "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 within the optimization problem in a high-dimensional portfolio setting where the number of assets is larger than the sample size. We propose a nonconvex turnover penalization model for large portfolios, taking into consideration transaction costs, and we establish the desired theoretical properties under mild regularity conditions. In addition, we extend the scenario where capital gain tax is considered in the proposed turnover penalization model. Monte Carlo simulations and empirical studies using SP 500 and Russell 3000 stocks show the satisfactory performance of the proposed portfolio.
Speaker's website (links to UIUC): https://economics.illinois.edu/profile/marcelom
Seminar Date/Time: Thursday May 16, 2024, at 4:10pm
Location: MSB 1147 (Refreshments 3:30pm)