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Equilibrium Returns with Transaction Costs

Bouchard, Bruno - 2018

We study how trading costs are reflected in equilibrium returns. To this end, we develop a tractable continuous-time risk-sharing model, where heterogeneous mean-variance investors trade subject to a quadratic transaction cost. The corresponding equilibrium is characterized as the unique...

Persistent link: https://www.econbiz.de/10012933399

Asset pricing and consumption-portfolio choice with recursive utility and unspanned risk

Kraft, Holger; Seiferling, Thomas; Seifried, Frank Thomas - 2014 - First version: March 6, 2014; this version: June 1, 2014

We study consumption-portfolio and asset pricing frameworks with recursive preferences and unspanned risk. We show that in both cases, portfolio choice and asset pricing, the value function of the investor/representative agent can be characterized by a specific semilinear partial differential...

Persistent link: https://www.econbiz.de/10010359861

Machine Learning and the Implementable Efficient Frontier

Jensen, Theis Ingerslev; Kelly, Bryan T.; Malamud, Semyon; … - 2022

We propose that investment strategies should be evaluated based on their net-of-trading-cost return for each level of risk, which we term the "implementable efficient frontier." While numerous studies use machine learning return forecasts to generate portfolios, their agnosticism toward trading...

Persistent link: https://www.econbiz.de/10013492674

Optimal consumption and investment with Epstein-Zin recursive utility

Kraft, Holger; Seiferling, Thomas; Seifried, Frank Thomas - 2016 - This version: May 31, 2016

We study continuous-time optimal consumption and investment with Epstein-Zin recursive preferences in incomplete markets. We develop a novel approach that rigorously constructs the solution of the associated Hamilton-Jacobi-Bellman equation by a fixed point argument and makes it possible to...

Persistent link: https://www.econbiz.de/10012061099

Liquidity as an Investment Style

Ibbotson, Roger G. - 2013

We present comprehensive evidence in support of giving liquidity equal standing to size, value/growth, and momentum as investment styles, as defined by Sharpe (1992). First, we show that financial market liquidity, as identified by stock turnover, is an economically significant indicator of...

Persistent link: https://www.econbiz.de/10013093548

Asset prices in general equilibrium with recursive utility and illiquidity induced by transactions costs

Buss, Adrian; Uppal, Raman; Vilkov, Grigory - 2014 - This version: February 15, 2014

In this paper, we study the effect of proportional transaction costs on consumption-portfolio decisions and asset prices in a dynamic general equilibrium economy with a financial market that has a single-period bond and two risky stocks, one of which incurs the transaction cost. Our model has...

Persistent link: https://www.econbiz.de/10010250161

Asset prices in general equilibrium with recursive utility and illiquidity induced by transactions costs

Buss, Adrian; Uppal, Raman; Vilkov, Grigory - 2015 - This version: February 2015

In this paper, we study the effect of proportional transaction costs on consumption- portfolio decisions and asset prices in a dynamic general equilibrium economy with a financial market that has a single-period bond and two risky stocks, one of which incurs the transaction cost. Our model has...

Persistent link: https://www.econbiz.de/10012061082

The Transactional Asset Pricing Approach (TAPA) : A new framework for valuing illiquid-income producing assets

Michailetz, Vladimir B. - 2019

capital valuation and interest in the early part of 20th c,, valuation theory has not been static. A particular spurt of … activity has been observed in the 1950-1960th when the theory of pricing financial assets has been elaborated starting from …, therefore, predicating a valuation theory on distributional statistical concepts of average returns and standard deviations, in …

Persistent link: https://www.econbiz.de/10012891499

Robust hedging with proportional transaction costs

Dolinsky, Yan; Soner, Halil Mete - 2013

Duality for robust hedging with proportional transaction costs of path dependent European options is obtained in a discrete time financial market with one risky asset. Investor's portfolio consists of a dynamically traded stock and a static position in vanilla options which can be exercised at...

Persistent link: https://www.econbiz.de/10009750655

Rebalancing with linear and quadratic costs

Liu, Ren; Muhle-Karbe, Johannes; Weber, Marko - 2014

We consider a market consisting of one safe and one risky asset, which offer constant investment opportunities. Taking into account both proportional transaction costs and linear price impact, we derive optimal rebalancing policies for representative investors with constant relative risk...

Persistent link: https://www.econbiz.de/10010338752

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