OPTIMAL PORTFOLIO MANAGEMENT WITH TRANSACTIONS COSTS AND CAPITAL GAINS TAXES

摘要: We examine the optimal trading strategy for an investment fund which in absence of transactions costs would like to maintain assets exogenously fixed proportions, e.g. 60/30/10 stocks, bonds and cash. Transactions are assumed be proportional, but may differ with buying selling, include a (positive) capital gains tax component. show that policy involves no-trade region about target stock proportions. As long as actual proportions remain inside this region, no should occur. When outside undertaken move ratio region's boundary. compute multi-asset resulting annual turnover tracking error strategy. Almost surely, will require just one risky asset at any moment, although is traded varies stochastically through time. Compared current practice periodic rebalancing all their reduce by almost 50%. The response allow substantially exceed levels before selling. asset's proportion exceeds critical level, selling occur bring it back level. Capital taxes lead lower initial levels. Similarly, invest less initially classes have high costs, such emerging markets.