Intellectual Contribution by Alan Jung

Contribution Title

Commissions and Asset Allocation

Publication

The Journal of Portfolio Management

Co-author

G. Gennotte

Year

1992

Description

The authors examine the effect of commission expenses on dynamic asset allocation strategies. They show that commissions reduce investors' utility levels, and that most of the reduction is due to the costs of setting up and liquidating the portfolio. The optimal strategy requires investors to trade only when asset values lie outside a critical range. The range widens as the investor approaches the end of his investment horizon, and it is constant and narrow at all earlier times. As investors monitor their portfolios more frequently, the range widens and utility slightly increases. The utility loss incurred by following myopic 1-year strategies is small.

Complete Citation

Commissions and Asset Allocation, co-authored with G. Gennotte. The Journal of Portfolio Management, Fall 1992, Vol. 19 No. 1.

Website

See Faculty: Alan Jung