ABSTRACT
Trading stocks incurs transaction costs. So far, we have not dealt explicitly with the impact of transaction costs on equity portfolio management, with the exception of Chapter 8, where we built optimal alpha models under an aggregate portfolio turnover constraint. However, portfolio turnover is just a proxy for transaction costs, which are oen stock specic; trading illiquid stocks would have higher costs than trading liquid stocks even if turnover is the same. erefore, to fully understand the impact of transaction costs on portfolio management, it is important to incorporate stock-level detail in the analysis.
