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No-transaction bounds and estimation risk

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  • Vasyl Golosnoy

Abstract

This paper considers a mean-variance portfolio investor facing proportional transaction costs and willing to account for estimation risk with a shrinkage approach. In such a situation the optimal portfolio policy can be characterized by no-transaction bounds existing both due to transaction cost and estimation risk effects. The paper derives analytically the optimal portfolio policy and provides a simulation study to illustrate the obtained results.

Suggested Citation

  • Vasyl Golosnoy, 2010. "No-transaction bounds and estimation risk," Quantitative Finance, Taylor & Francis Journals, vol. 10(5), pages 487-493.
    • Handle: RePEc:taf:quantf:v:10:y:2010:i:5:p:487-493
    DOI: 10.1080/14697680903067104
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    References listed on IDEAS

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