Modeling Multiportfolio Selection Considering the Market Impact in Iran Stock Market

Document Type : Original Article

Authors

1 PhD Student, Department of Financial Engineering, Faculty of Industrial Engineering, Tarbiat Modares University, Tehran, Iran.

2 Associate Prof., Department of Financial Engineering, Faculty of Industrial Engineering, Tarbiat Modares University, Tehran, Iran.

3 Assistant Prof., Department of Financial Engineering, Faculty of Industrial Engineering, Tarbiat Modares University, Tehran, Iran.

10.30495/ijfma.2022.61899.1684

Abstract

In most of the existing research on investment portfolio optimization, it is assumed, usually implicitly, that investors’ portfolios are managed individually and independently. However, in reality, portfolio managers typically manage the accounts (i.e., portfolios) of multiple client-investors simultaneously and decisions made for one client’s portfolio may induce a market impact cost that impairs the performance of not only that client’s account, but other clients’ accounts as well. This suggests that there may be transaction-induced performance interdependencies across all portfolios. This implies that utility-maximization for all of an investment manager’s clients (collectively) requires a multi-portfolio optimization model. That is the objective of this study. Specifically, this study models multi-portfolio optimization using data drawn from the Tehran Stock Exchange while considering market impact costs on all portfolios, and the fair allocation of such costs.
In other words, the main objective of the present study is to find the suitable model for market impacts and optimizing multiple portfolios with mutual behavioral effects on each other. For this purpose, ISTAR model is used to obtain market impacts and a model is introduced and implemented using data of selected stocks from Tehran Stock Exchange in 1398. Comparison of the results obtained from the model introduced in this paper and the classic optimization models indicate that the manager's performance and customers' utility, within the framework of the proposed model, are higher than they would be if the interdependence among the accounts is not taken into consideration. Thus, the proposed framework outperforms other models.

Keywords

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