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Scaled and stable mean-variance-EVaR portfolio selection strategy with proportional transaction costs

Labour, Employment and Work in New Zealand

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Field Value
 
Title Scaled and stable mean-variance-EVaR portfolio selection strategy with proportional transaction costs
 
Creator Mills, Ebenezer Fiifi Emire Atta
Yu, Bo
Yu, Jie
 
Description This paper studies a portfolio optimization problem with variance and Entropic Value-at-Risk (evar) as risk measures. As the variance measures the deviation around the expected return, the introduction of evar in the mean-variance framework helps to control the downside risk of portfolio returns. This study utilized the squared l2-norm to alleviate estimation risk problems arising from the mean estimate of random returns. To adequately represent the variance-evar risk measure of the resulting portfolio, this study pursues rescaling by the capital accessible after payment of transaction costs. The results of this paper extend the classical Markowitz model to the case of proportional transaction costs and enhance the efficiency of portfolio selection by alleviating estimation risk and controlling the downside risk of portfolio returns. The model seeks to meet the requirements of regulators and fund managers as it represents a balance between short tails and variance. The practical implications of the findings of this study are that the model when applied, will increase the amount of capital for investment, lower transaction cost and minimize risk associated with the deviation around the expected return at the expense of a small additional risk in short tails.
 
Publisher VGTU Press Technika
 
Date 2017-08-27
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
Peer-reviewed Article
 
Format application/pdf
 
Identifier https://journals.vgtu.lt/index.php/JBEM/article/view/1232
10.3846/16111699.2017.1342272
 
Source Journal of Business Economics and Management; Vol 18 No 4 (2017); 561-584
2029-4433
1611-1699
 
Language eng
 
Relation https://journals.vgtu.lt/index.php/JBEM/article/view/1232/969
 
Rights Copyright (c) 2017 Vilnius Gediminas Technical University (VGTU) Press
http://creativecommons.org/licenses/by/4.0