Grinold, Chapter 14: Portfolio Construction Study Notes review the following learning objectives:
Describe the inputs to the portfolio construction process and explain challenges faced when using these inputs.
Evaluate the motivation for and the methods used for refining alphas in the implementation process.
Describe neutralization and the different approaches used for refining alphas to be neutral.
Explain the implications of transaction costs on portfolio construction.
Describe practical issues in portfolio construction, including the determination of an appropriate risk aversion, aversions to specific risks, and proper alpha coverage.
Describe portfolio revisions and rebalancing, and analyze the tradeoffs between alpha, risk, transaction costs, and time horizon.
Determine the optimal no-trade region for rebalancing with transaction costs.
Evaluate the strengths and weaknesses of the following portfolio construction techniques: screens, stratification, linear programming, and quadratic programming.
Describe dispersion, explain its causes, and describe methods for controlling forms of dispersion.
After reviewing the notes, you will be able to apply what you learned with practice questions.
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