ABSTRACT
We discuss mean-variance portfolio theory-fundamental to diversification of risk over various financial assets. Known and latent multifactor models and tests related to CAPM and APT are discussed with implications for portfolio investing and with an illustrative example. Regularization methods in the context of large-scale portfolio allocation are mentioned, as well as how the trading strategies are handled. As portfolio tracking and rebalancing is quite common in practice and because rebalancing requires trading, this chapter provides a comprehensive view of portfolio trading strategies that take into consideration transaction costs.
