Risks | |
Delivering Left-Skewed Portfolio Payoff Distributions in the Presence of Transaction Costs |
|
Jacek B Krawczyk1  | |
[1] Victoria University of Wellington, School of Economics and Finance, PO Box 600, Wellington 6140, New Zealand; E-Mail | |
关键词:
|
|
DOI : 10.3390/risks3030318 | |
来源: mdpi | |
【 摘 要 】
For pension-savers, a low payoff is a financial disaster. Such investors will most likely prefer left-skewed payoff distributions over right-skewed payoff distributions. We explore how such distributions can be delivered. Cautious-relaxed utility measures are cautious in ensuring that payoffs don’t fall much below a reference value, but relaxed about exceeding it. We find that the payoff distribution delivered by a cautious-relaxed utility measure has appealing features which payoff distributions delivered by traditional utility functions don’t. In particular, cautious-relaxed distributions can have the mass concentrated on the left, hence be left-skewed. However, cautious-relaxed strategies prescribe frequent portfolio adjustments which may be expensive if transaction costs are charged. In contrast, more traditional strategies can be time-invariant. Thus we investigate the impact of transaction costs on the appeal of cautious-relaxed strategies. We find that relatively high transaction fees are required for the cautious-relaxed strategy to lose its appeal. This paper contributes to the literature which compares utility measures by the payoff distributions they produce and finds that a cautious-relaxed utility measure will deliver payoffs that many investors will prefer.
【 授权许可】
CC BY
© 2015 by the author; licensee MDPI, Basel, Switzerland.
【 预 览 】
Files | Size | Format | View |
---|---|---|---|
RO202003190007520ZK.pdf | 534KB | download |