Implementation Efficiency

Posted: 29 Oct 2005


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.

Keywords: Portfolio Management, Equity Strategies, Portfolio Construction, Rebalancing and Implementation

Suggested Citation

Grinold, Richard C., Implementation Efficiency. Financial Analysts Journal, Vol. 61, No. 5, pp. 52-64, September/October 2005, Available at SSRN:

Richard C. Grinold (Contact Author)

Barclays ( email )

San Francisco, CA 94105
United States

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