We propose an analytic framework for integrating alpha models with portfolio turnover. In practice, many alpha models are not constructed in such an integrated framework. Typically, managers first develop an alpha model (giving little consideration to turnover), and then throw the alpha model into an optimizer, setting turnover constraints to handle the transaction costs. There are two drawbacks to this two-step process: 1) It makes it hard to know the true effectiveness of the alpha model; and 2) it does not let managers adjust the alpha model along the way as AUM grow.


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