Bridge over ocean
1 September 2005 Financial Analysts Journal Volume 61, Issue 5

Implementation Efficiency

  1. Richard C. Grinold

An analysis of risk, covariance, and correlation is used to measure the implementation losses that arise as a result of transaction costs and investment constraints. Losses are measured relative to an ideal, costless, and unconstrained implementation. The figure of merit is mean-variance expected utility expressed as portfolio alpha minus penalties for active variance and transaction costs. In a general setting, before-cost results are found that define the opportunity loss and identify its sources. In a specific case, after-cost results are found that enable prediction of how expected utility and information ratios are influenced by the investment process, information turnover, risk aversion, and transaction costs.

Read the Complete Article in Financial Analysts Journal Financial Analysts Journal CFA Institute Member Content

We’re using cookies, but you can turn them off in Privacy Settings.  Otherwise, you are agreeing to our use of cookies.  Accepting cookies does not mean that we are collecting personal data. Learn more in our Privacy Policy.