We analyze the optimal portfolio policy for a multiperiod mean-variance investor facing a large number of risky assets in the presence of general transaction cost. For proportional transaction costs, we give a closed-form expression for a no-trade region, shaped as a multi-dimensional...

Multiperiod portfolio choice is the central problem in active asset management. Multiperiod dynamic portfolios are notoriously difficult to solve, especially when there are hundreds of tradable assets as well as a large number of state variables. In this paper, we develop a novel two-step...

Computing equilibria in dynamic stochastic economies is still a technically difficult task. Economists are aware of the so-call curse of dimensionality and the limits placed on the ability to solve high-dimensional dynamic models. Many of the economic models subjected to the curse of...

We investigate how transaction costs change the number of characteristics that are jointly significant for an investor's optimal portfolio, and hence, how they change the dimension of the cross section of stock returns. We find that transaction costs increase the number of significant...

Identifying outperforming mutual funds ex-ante is a notoriously difficult task. We use machine learning to exploit fund characteristics and construct portfolios of equity funds that earn positive and significant out-of-sample alpha net of all costs. In contrast, alphas of portfolios selected...

We propose a novel approach to active risk management based on the recent Basel II regulations to obtain optimal portfolios with minimum capital requirements. In order to avoid regulatory penalties due to an excessive number of Value-at-Risk (VaR) violations, capital requirements are minimized...