This paper addresses the optimal rebalancing problem of a long-short portfolio with high net asset value under trading impact losses. The fund manager may employ leveraging as a tool to increase portfolio returns. However, to mitigate potential leverage risks, frequent rebalancing may become...

We study the impact of liquidity in optimal portfolio choice under leveraging to improve risk-adjusted and absolute returns. We consider a quasi-elastic market with continuous trading where temporary liquidity costs are sufficiently large relative to permanent impact. We show analytically that...

I present a generalized benchmarking theory on portfolio selection relative to a market index. Using the bias-variance trade-off of the tracking error, analytical conditions are derived to describe when it is optimal for a portfolio of risky assets to follow the index, or align the portfolio...

Index funds that track a benchmark, such as the market cap-weighted S\&P 500 index, tend to have portfolio holdings biased toward slower-growth large-cap equities that result in the fund's under-performance, especially in economic downturns. We develop a rigorous quantitative framework that...