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The impact of proportional transaction costs on systematically generated portfolios

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  • Johannes Ruf
  • Kangjianan Xie

Abstract

The effect of proportional transaction costs on systematically generated portfolios is studied empirically. The performance of several portfolios (the index tracking portfolio, the equally-weighted portfolio, the entropy-weighted portfolio, and the diversity-weighted portfolio) in the presence of dividends and transaction costs is examined under different configurations involving the trading frequency, constituent list size, and renewing frequency. Moreover, a method to smooth transaction costs is proposed.

Suggested Citation

  • Johannes Ruf & Kangjianan Xie, 2019. "The impact of proportional transaction costs on systematically generated portfolios," Papers 1904.08925, arXiv.org.
    • Handle: RePEc:arx:papers:1904.08925
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    References listed on IDEAS

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    10. Ioannis Karatzas & Donghan Kim, 2018. "Trading Strategies Generated Pathwise by Functions of Market Weights," Papers 1809.10123, arXiv.org, revised Mar 2019.
    11. Johannes Ruf & Kangjianan Xie, 2019. "Generalised Lyapunov Functions and Functionally Generated Trading Strategies," Applied Mathematical Finance, Taylor & Francis Journals, vol. 26(4), pages 293-327, July.
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    Cited by:

    1. Leila Hamilton-Russell & Thomas Malan O’Callaghan & Dmitrii Savin & Erik Schlögl, 2024. "Modifying Sequential Monte Carlo Optimisation for Index Tracking to Allow for Transaction Costs," Risks, MDPI, vol. 12(10), pages 1-44, September.

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