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A Combination Rule for Portfolio Selection with Transaction Costs
Author(s) -
Suh Sangwon
Publication year - 2016
Publication title -
international review of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.489
H-Index - 18
eISSN - 1468-2443
pISSN - 1369-412X
DOI - 10.1111/irfi.12087
Subject(s) - portfolio , post modern portfolio theory , extant taxon , portfolio optimization , transaction cost , application portfolio management , merton's portfolio problem , replicating portfolio , selection (genetic algorithm) , separation property , portfolio insurance , computer science , modern portfolio theory , econometrics , economics , financial economics , microeconomics , project portfolio management , artificial intelligence , management , evolutionary biology , project management , biology
We propose a new portfolio rule for portfolio selection problems in the presence of transaction costs. The new portfolio rule is formed by combining an extant portfolio rule with the no‐rebalancing portfolio rule, which specifies the current portfolio weights before rebalancing as the desired portfolio weights. The new portfolio rule can be applied into most extant portfolio rules. Simulation and out‐of‐sample evidence show that the new portfolio rule can greatly improve portfolio performance, in comparison with the extant portfolio rules to be combined.