Paper Info
Title
Rebalancing Frequency Considerations For Kelly-Optimal Stock Portfolios In A Control-Theoretic Framework
Abstract
In this paper, motivated by the celebrated work of Kelly, we consider the problem of portfolio weight selection to maximize expected logarithmic growth of a trader's account. Going beyond existing literature, our focal point here is the rebalancing frequency which we include as an additional parameter in the maximization. The problem is first set up in a control-theoretic framework, and then, the main question we address is as follows: In the absence of transaction costs, does high-frequency trading always lead to the best performance? Related to this question is our prior work on Kelly betting which examines the impact of making a wager and letting it ride. Our prior results indicate that it is often the case that there are no performance benefits associated with high-frequency trading. In the present paper, we generalize the analysis from the single-asset case to a portfolio with multiple risky assets. We show that if there is an asset satisfying a certain dominance condition, then an optimal portfolio consists of this asset alone; i.e., if the trader puts "all eggs in one basket," performance becomes a constant function of rebalancing frequency. Said another way, the problem of rebalancing is rendered moot. The paper also includes simulations which address practical considerations associated with real stock prices vis-a-vis the dominance condition.
Year
DOI
Venue
2018
10.1109/CDC.2018.8619189
2018 IEEE CONFERENCE ON DECISION AND CONTROL (CDC)
Field
DocType
ISSN
Transaction cost,Focal point,Mathematical economics,Mathematical optimization,Computer science,Kelly criterion,Logarithmic growth,Constant function,Portfolio,Maximization
Conference
0743-1546
Citations 
PageRank 
References 
0
0.34
3
Authors
3
Name
Order
Citations
PageRank
Chung-Han Hsieh142.39
J. A. Gubner215017.76
Barmish, B.R.37120.04