Save the Trading Costs: Simple and Intuitive Rule for Smart Beta Strategy (Technical Appendix)
5 Pages Posted: 13 Nov 2014
Date Written: November 11, 2014
We got a simple and intuitive rule for smart beta strategy by solving a quadratic problem with long only constraint and under existence of proportional trading costs. We can see two lines in optimal solution. Smart beta portfolio can save portfolio turnover (e.g. trading costs) by omitting trade against stocks between the two lines.
We proposed portfolio construction rule for smart beta strategy in previous paper ("Save the Trading Costs:Simple and Intuitive Rule for Smart Beta Strategy"). This paper is technical appendix for previous paper.
The paper "Save the Trading Costs: Simple and Intuitive Rule for Smart Beta Strategy" to which these Appendices apply is available at the following URL: http://ssrn.com/abstract=2453380
Keywords: Trading Costs, Smart Beta, Factor Tilts, Turnover
JEL Classification: G11, C61
Suggested Citation: Suggested Citation