Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/179401
Authors: 
Mushori, Sabastine
Chikobvu, Delson
Year of Publication: 
2016
Series/Report no.: 
EERI Research Paper Series 23/2016
Abstract: 
We propose a multi-stage stochastic trading cost model in optimal portfolio selection. This strategy captures uncertainty in implicit transaction costs incurred by an investor during initial trading and in subsequent rebalancing of the portfolio. We assume that implicit costs are stochastic as are asset returns. We use mean absolute deviation as our risk and apply the model to securities on the Johannesburg Stock Market. The model generates optimal portfolios by minimizing total implicit transaction costs incurred. It provides least-cost optimal portfolios whose net wealths are better than those gener- ated by the mean-variance, minimax and mean absolute deviation models.
Subjects: 
implicit transaction costs
stochastic programming
JEL: 
D23
C61
Document Type: 
Working Paper

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