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Parameter uncertainty in multiperiod portfolio optimization with transaction costs

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Parameter uncertainty in multiperiod portfolio optimization with transaction costs. / DeMiguel, Victor; Martin Utrera, Alberto; Nogales, Francisco J.

In: Journal of Financial and Quantitative Analysis, Vol. 50, No. 6, 12.2015, p. 1443-1471.

Research output: Contribution to journalJournal articlepeer-review

Harvard

DeMiguel, V, Martin Utrera, A & Nogales, FJ 2015, 'Parameter uncertainty in multiperiod portfolio optimization with transaction costs', Journal of Financial and Quantitative Analysis, vol. 50, no. 6, pp. 1443-1471. https://doi.org/10.1017/S002210901500054X

APA

DeMiguel, V., Martin Utrera, A., & Nogales, F. J. (2015). Parameter uncertainty in multiperiod portfolio optimization with transaction costs. Journal of Financial and Quantitative Analysis, 50(6), 1443-1471. https://doi.org/10.1017/S002210901500054X

Vancouver

DeMiguel V, Martin Utrera A, Nogales FJ. Parameter uncertainty in multiperiod portfolio optimization with transaction costs. Journal of Financial and Quantitative Analysis. 2015 Dec;50(6):1443-1471. https://doi.org/10.1017/S002210901500054X

Author

DeMiguel, Victor ; Martin Utrera, Alberto ; Nogales, Francisco J. / Parameter uncertainty in multiperiod portfolio optimization with transaction costs. In: Journal of Financial and Quantitative Analysis. 2015 ; Vol. 50, No. 6. pp. 1443-1471.

Bibtex

@article{e7ab40c5e5ca450e9933faab3b458cc6,
title = "Parameter uncertainty in multiperiod portfolio optimization with transaction costs",
abstract = "We study the impact of parameter uncertainty in the expected utility of a multiperiod investor subject to quadratic transaction costs. We characterize the utility loss associated with ignoring parameter uncertainty, and show that it is equal to the product between the single-period utility loss and another term that captures the effects of the multiperiod mean-variance utility and transaction cost losses. To mitigate the impact of parameter uncertainty, we propose two multiperiod shrinkage portfolios and demonstrate with simulated and empirical datasets that they substantially outperform portfolios that ignore parameter uncertainty, transaction costs, or both.",
author = "Victor DeMiguel and {Martin Utrera}, Alberto and Nogales, {Francisco J.}",
note = "http://journals.cambridge.org/action/displayJournal?jid=JFQ The final, definitive version of this article has been published in the Journal, Journal of Financial and Quantitative Analysis, 50 (6), pp 1443-1471 2015, {\textcopyright} 2015 Cambridge University Press.",
year = "2015",
month = dec,
doi = "10.1017/S002210901500054X",
language = "English",
volume = "50",
pages = "1443--1471",
journal = "Journal of Financial and Quantitative Analysis",
issn = "0022-1090",
publisher = "Cambridge University Press",
number = "6",

}

RIS

TY - JOUR

T1 - Parameter uncertainty in multiperiod portfolio optimization with transaction costs

AU - DeMiguel, Victor

AU - Martin Utrera, Alberto

AU - Nogales, Francisco J.

N1 - http://journals.cambridge.org/action/displayJournal?jid=JFQ The final, definitive version of this article has been published in the Journal, Journal of Financial and Quantitative Analysis, 50 (6), pp 1443-1471 2015, © 2015 Cambridge University Press.

PY - 2015/12

Y1 - 2015/12

N2 - We study the impact of parameter uncertainty in the expected utility of a multiperiod investor subject to quadratic transaction costs. We characterize the utility loss associated with ignoring parameter uncertainty, and show that it is equal to the product between the single-period utility loss and another term that captures the effects of the multiperiod mean-variance utility and transaction cost losses. To mitigate the impact of parameter uncertainty, we propose two multiperiod shrinkage portfolios and demonstrate with simulated and empirical datasets that they substantially outperform portfolios that ignore parameter uncertainty, transaction costs, or both.

AB - We study the impact of parameter uncertainty in the expected utility of a multiperiod investor subject to quadratic transaction costs. We characterize the utility loss associated with ignoring parameter uncertainty, and show that it is equal to the product between the single-period utility loss and another term that captures the effects of the multiperiod mean-variance utility and transaction cost losses. To mitigate the impact of parameter uncertainty, we propose two multiperiod shrinkage portfolios and demonstrate with simulated and empirical datasets that they substantially outperform portfolios that ignore parameter uncertainty, transaction costs, or both.

U2 - 10.1017/S002210901500054X

DO - 10.1017/S002210901500054X

M3 - Journal article

VL - 50

SP - 1443

EP - 1471

JO - Journal of Financial and Quantitative Analysis

JF - Journal of Financial and Quantitative Analysis

SN - 0022-1090

IS - 6

ER -