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When “time varying” volatility meets “transaction cost” in portfolio selection

Research output: Contribution to Journal/Magazine › Journal article › peer-review

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When “time varying” volatility meets “transaction cost” in portfolio selection. / Qiao, W; Bu, D.; Gibberd, Alex et al.
In: Journal of Empirical Finance, Vol. 73, 30.09.2023, p. 220-237.

Research output: Contribution to Journal/Magazine › Journal article › peer-review

Harvard

Qiao, W, Bu, D, Gibberd, A, Liao, Y, Wen, T & Li, E 2023, 'When “time varying” volatility meets “transaction cost” in portfolio selection', Journal of Empirical Finance, vol. 73, pp. 220-237. https://doi.org/10.1016/j.jempfin.2023.06.006

APA

Qiao, W., Bu, D., Gibberd, A., Liao, Y., Wen, T., & Li, E. (2023). When “time varying” volatility meets “transaction cost” in portfolio selection. Journal of Empirical Finance, 73, 220-237. https://doi.org/10.1016/j.jempfin.2023.06.006

Vancouver

Qiao W, Bu D, Gibberd A, Liao Y, Wen T, Li E. When “time varying” volatility meets “transaction cost” in portfolio selection. Journal of Empirical Finance. 2023 Sept 30;73:220-237. Epub 2023 Jul 13. doi: 10.1016/j.jempfin.2023.06.006

Author

Qiao, W ; Bu, D. ; Gibberd, Alex et al. / When “time varying” volatility meets “transaction cost” in portfolio selection. In: Journal of Empirical Finance. 2023 ; Vol. 73. pp. 220-237.

Bibtex

@article{c52fa5e7f5a4448fb5f1884f233577e3,
title = "When “time varying” volatility meets “transaction cost” in portfolio selection",
abstract = "We propose a new strategy for mean–variance portfolio selection that tackles transaction costs and change detection in covariance matrix simultaneously. The new strategy solely rebalances the portfolio when change points are detected in the covariance matrix, striking an optimal trade-off between rebalancing the portfolio to capturing the recent information in return data and avoiding excessive trading. Our empirical results suggest favorable out-of-sample performance of the new strategy in terms of portfolio variance, portfolio turnovers and portfolio sharpe ratio with transaction cost. We also show that these gains come from the improved accuracy for covariance matrix prediction and the ability for tracking significant changes in covariance matrix.",
author = "W Qiao and D. Bu and Alex Gibberd and Y Liao and T Wen and E. Li",
year = "2023",
month = sep,
day = "30",
doi = "10.1016/j.jempfin.2023.06.006",
language = "English",
volume = "73",
pages = "220--237",
journal = "Journal of Empirical Finance",
issn = "0927-5398",
publisher = "Elsevier",

}

RIS

TY - JOUR

T1 - When “time varying” volatility meets “transaction cost” in portfolio selection

AU - Qiao, W

AU - Bu, D.

AU - Gibberd, Alex

AU - Liao, Y

AU - Wen, T

AU - Li, E.

PY - 2023/9/30

Y1 - 2023/9/30

N2 - We propose a new strategy for mean–variance portfolio selection that tackles transaction costs and change detection in covariance matrix simultaneously. The new strategy solely rebalances the portfolio when change points are detected in the covariance matrix, striking an optimal trade-off between rebalancing the portfolio to capturing the recent information in return data and avoiding excessive trading. Our empirical results suggest favorable out-of-sample performance of the new strategy in terms of portfolio variance, portfolio turnovers and portfolio sharpe ratio with transaction cost. We also show that these gains come from the improved accuracy for covariance matrix prediction and the ability for tracking significant changes in covariance matrix.

AB - We propose a new strategy for mean–variance portfolio selection that tackles transaction costs and change detection in covariance matrix simultaneously. The new strategy solely rebalances the portfolio when change points are detected in the covariance matrix, striking an optimal trade-off between rebalancing the portfolio to capturing the recent information in return data and avoiding excessive trading. Our empirical results suggest favorable out-of-sample performance of the new strategy in terms of portfolio variance, portfolio turnovers and portfolio sharpe ratio with transaction cost. We also show that these gains come from the improved accuracy for covariance matrix prediction and the ability for tracking significant changes in covariance matrix.

U2 - 10.1016/j.jempfin.2023.06.006

DO - 10.1016/j.jempfin.2023.06.006

M3 - Journal article

VL - 73

SP - 220

EP - 237

JO - Journal of Empirical Finance

JF - Journal of Empirical Finance

SN - 0927-5398

ER -