# The impact of proportional transaction costs on systematically generated portfolios

## TL;DR

This paper empirically examines how proportional transaction costs affect various systematically generated portfolios, analyzing their performance under different trading conditions and proposing a method to smooth transaction costs.

## Contribution

It provides an empirical analysis of transaction costs on multiple portfolio strategies and introduces a new method to mitigate these costs.

## Key findings

- Transaction costs significantly impact portfolio performance.
- Different portfolios respond uniquely to transaction costs.
- A smoothing method for transaction costs improves portfolio efficiency.

## Abstract

The effect of proportional transaction costs on systematically generated portfolios is studied empirically. The performance of several portfolios (the index tracking portfolio, the equally-weighted portfolio, the entropy-weighted portfolio, and the diversity-weighted portfolio) in the presence of dividends and transaction costs is examined under different configurations involving the trading frequency, constituent list size, and renewing frequency. Moreover, a method to smooth transaction costs is proposed.