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Multi-Asset Investing: A practical guide to modern portfolio management by Yoram Lustig

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24. Implementation

The objective of portfolio implementation is minimising the implementation shortfall, which is the difference between the return of the theoretical target portfolio and that of the implemented portfolio. Implementation shortfall results from differences between target and actual portfolio weights, transaction costs and cash management.

Roger Clarke et al [273] expanded the fundamental law of active management by adding a transfer coefficient:

where IR is information ratio, IC is information coefficient, BR is breadth (these first three variables from the original Grinold’s fundamental law of active management) and ...

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