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Dr. David Esch at QWAFAFEW NYC

Dr. David EschDr. David Esch presented on "The Turnover-Tracking Error Frontier: Efficient Partial Trading" at QWAFAFEW NYC on November 16 based on research by Dr. David Esch, Dr. Richard Michaud, and Robert Michaud.

Given a proposed trade to a target optimal portfolio from current non-optimal holdings within an asset universe and estimates and/or forecasts of mean and variance, there exists a frontier ranging from the current holdings to the target portfolio that simultaneously minimizes turnover from holdings and tracking error from the target portfolio. The constraints from the optimization that formed the target naturally apply to this frontier. The pivot portfolios on this frontier break the proposed trade into parts, often consisting of many fewer asset trades than the whole portfolio trade would imply. The first trades on this sequence often greatly reduce the tracking error with far less turnover than the entire trade. Paired with Michaud optimization and rebalance tests, a stopping point can be determined such that the traded portfolio, while not the optimal portfolio, is statistically optimal, and incurs far less turnover. Commercial software to evaluate the best trade on this frontier is available from New Frontier Advisors, and is U. S. patent pending.

New Frontier offers institutional expertise and patented investment processes to enhance return and manage risk via statistically vigorous, robust, and transparent investment vehicles.
Awarded four patents, New Frontier provides state-of-the-art asset allocation and portfolio optimization tools featuring the Michaud Efficient Frontier™ and other innovations.
A globally-recognized independent research authority, New Frontier continues to contribute to the cutting-edge of investment theory in asset allocation, investment strategies, global investment management, optimization, stock valuation, portfolio analysis, and trading costs.

12-Year Track Record

New Frontier's flagship portfolios completed a 12-year track record at the end of October.

NYSSA Presentation Video

NYSSA has made the video of Dr. Michaud and Dr. Esch's presentation of "Deconstructing Black-Litterman" available.

About New Frontier

New Frontier is a Boston-based research and registered investment advisory firm specializing in the development and application of state-of-the-art investment technology. Founded in 1999 by the inventors of the world's first broad spectrum, patented, provably effective portfolio optimization process, the firm continues to pioneer new developments in asset management. New Frontier's services help institutional investors worldwide select and maintain more effective portfolios.