search query: @author Liu, H. / total: 8
reference: 3 / 8
| Author: | Liu, H. Loewenstein, M. |
| Title: | Optimal Portfolio Selection with Transaction Costs and Finite Horizons |
| Journal: | Review of Financial Studies
2002 : FALL, VOL. 15:3, p. 805-836 |
| Index terms: | TRADE COSTS TRANSACTION COSTS PORTFOLIO SELECTION |
| Language: | eng |
| Abstract: | The authors examine the optimal trading strategy for a CRRA investor who maximizes the expected utility of wealth on a finite date and faces transaction costs. Closed-form solutions are obtained when this date is uncertain. The authors then show a sequence of analytical solutions converge to the solution to the problem with a deterministic finite horizon. Consistent with the common life-cycle investment advice, the optimal trading strategy is found to be horizon dependent and largely buy and hold. Moreover, it might be optimal for the investor in the authors' model not to buy any stock, even when the risk premium is positive. Further analysis of the optimal policy is also provided. |
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