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Optimal Trend-Following With Transaction Costs

Abstract Views
2042
Author
Valeriy Zakamulin Javier Giner
Category
Financial
Date Posted
2022/11/22
Date Retrieved
2023/03/18
Date Revised
2023/03/18
Date Written
2022/11/20
Description
Despite trend-following investings widespread popularity optimal trend-following with transaction costs remains poorly understood. Existing studies on the subject are limited and use a theoretical approach that is difficult to solve. In this paper we propose a new more practical model that strikes a balance between theoretical simplicity and practical relevance. Our model reduces trading costs and produces a solution that is comparable to the popular simple moving average crossover rule. By using our model traders can justify using the crossover rule in practice. We also provide historical simulations that demonstrate the effectiveness of our model supporting our theoretical findings. In short our paper provides a practical and effective solution to the problem of optimal trend-following with transaction costs.
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862
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0
JEL Classifications
G11 G17
Keywords
stock market trend-following transaction costs simple moving average moving average crossover
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0
Pages
41
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210
Readers
18
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