Fixed trading costs, signal processing and stochastic portfolio networks Online publication date: Mon, 05-Mar-2007
by C. Kenneth Jones
European J. of Industrial Engineering (EJIE), Vol. 1, No. 1, 2007
Abstract: In this study, we use zero-one variables to control fixed transaction costs independent of trade size in the portfolio selection problem. The optimal solution to the maximum flow, risk constrained stochastic portfolio network is found using Digital Portfolio Theory (DPT). Digital signals describe return processes and power spectral densities describe variances of long and short horizon returns. We find high fixed trading costs reduce size and affect composition of optimal portfolios for small investors or long holding periods. High risk portfolios are more sensitive to trading costs. Optimal portfolios for active traders or large portfolios are largely unaffected by fixed commission costs.
Existing subscribers:
Go to Inderscience Online Journals to access the Full Text of this article.
If you are not a subscriber and you just want to read the full contents of this article, buy online access here.Complimentary Subscribers, Editors or Members of the Editorial Board of the European J. of Industrial Engineering (EJIE):
Login with your Inderscience username and password:
Want to subscribe?
A subscription gives you complete access to all articles in the current issue, as well as to all articles in the previous three years (where applicable). See our Orders page to subscribe.
If you still need assistance, please email subs@inderscience.com