New study finds static portfolio policies more efficient in reducing turnover
The study compared two types of investment strategies: static and dynamic portfolios. The researchers found that the static portfolio, which trades towards a specific target portfolio, is just as effective as the dynamic portfolio in reducing transaction costs. They showed that adjusting the portfolio based on time-varying covariances or limiting certain investments can lead to better performance. Overall, the static portfolio with these adjustments is efficient and robust, even when faced with uncertainty in parameters and trading conditions.