Abstract:

The rebalance timing of index tracking with proportional transaction c

osts is studied. We make use of linear tracking error (MAD) first introduced by

Markus Rudolf. There are two cases in the rebalancing: periodical adjustment and

aperiodical adjustment. The latter case is studied. Results of numerical experi

ments on these two adjustment methods for the 30 indices of Dow Jones Industrial

Average in two months are given.
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Key words:
transaction costs, linear programming, rebalance, timing, tracking error, index tracking