Portfolio Considerations in Trading

Abstract:     
In today’s turbulent marketplace with unprecedented portfolio turnover, transition activity and drawdowns, one must identify and eliminate all sources of Sharpe ratio erosion. In this environment, trading costs and risks are significant contributors to this performance drag and avoiding them is the subject of this article. We observe and explain how common trading methods tend to increase costs and risks, and bridge the gap between portfolio management and the trade by introducing portfolio considerations in trading. Our techniques seek best execution from a portfolio perspective in accordance with Article 2 of the Uniform Prudent Investor Act.

Number of Pages in PDF File: 15

Keywords: Dark Market, Alternative Trading System, Portfolio Trading, Price Impact, Optimal Trading, Transition Management, Trading Costs, Trading Risks, Portfolio Partitioning, Prudent Investor, Liquidity Seeking, Algorithmic Trading, Block Trading, Sector Trading, Adverse Selection, Long Short, Hedging

JEL Classification: C15, C30, C51, G10, G14, N20

working papers series