A Study on the Mahalanobis Universal Portfolio With and Without Transaction Cost for (2K+1)- Bandwidth Toeplitz Matrices

DOI

10.2991/978-94-6463-342-9_3How to use a DOI?

Keywords

Universal portfolio; Toeplitz matrix; Transaction cost; Best Constant Rebalanced Portfolio (BCRP)

Abstract

Investing is crucial for wealth accumulation, safeguarding against inflation, and meeting financial objectives. Choosing effective strategies can significantly influence outcomes. Central to this is the Mahalanobis universal portfolio (MUP), characterised by its tendency to yield positive returns over extended durations. This paper delves into its optimisation using ( 2 k + 1 ) -bandwidth Toeplitz matrices associated with positive definite Toeplitz matrices. A novel aspect of our study is examining transaction costs’ impact on this portfolio, a territory not previously ventured into. Eight portfolios were formed and obtained from Yahoo! Finance, spanning January 2, 2015, to January 21, 2021, encompassing 1,500 trading days. This paper examines the influence of bandwidth, trading period length, and portfolio sizes on the cumulative wealth investors generate. Alternative investment strategies such as Buy-and-Hold (BH), Constant Rebalanced Portfolio (CRP), and Best Constant Rebalanced Portfolios (BCRP) are scrutinised to gauge their effectiveness in generating wealth. The findings demonstrate that the MUP facilitates notable wealth growth for investors, offering a principal increase and a balance of lower risk with higher returns than other strategies. By incorporating various metrics and transaction costs, the study provides valuable insights into the performance of investment strategies, enabling individuals to make informed decisions to maximise their returns.

Copyright

© 2023 The Author(s)

Open Access

Open Access This chapter is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License (http://creativecommons.org/licenses/by-nc/4.0/), which permits any noncommercial use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

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TY  - CONF
AU  - Chi-Hau Kor
AU  - Sheong-Wei Phoon
AU  - Wing-Son Loh
PY  - 2023
DA  - 2023/12/31
TI  - A Study on the Mahalanobis Universal Portfolio With and Without Transaction Cost for (2K+1)- Bandwidth Toeplitz Matrices
BT  - Proceedings of the 11th International Conference on Business, Accounting, Finance and Economics (BAFE 2023)
PB  - Atlantis Press
SP  - 13
EP  - 44
SN  - 2352-5428
UR  - https://doi.org/10.2991/978-94-6463-342-9_3
DO  - 10.2991/978-94-6463-342-9_3
ID  - Kor2023
ER  -