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The Science of Algorithmic Trading and Portfolio Management by Robert Kissell

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Chapter 10

Portfolio Construction

During the portfolio construction phase of the investment cycle, the underlying objective of the portfolio manager and goal of the trader are often at odds resulting in increased trading costs and suboptimal portfolio mixes. In this chapter we present techniques to optimize portfolio construction via combining the investment management and trading theories. We introduce a quantitative framework to determine the appropriate “optimal” execution strategy given the underlying efficient investment frontier. Portfolio enhancement strategies and advanced back-testing techniques are provided as further means to maximize portfolio returns.

Keywords

portfolio construction; portfolio optimization; efficient frontier; optimal ...

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