Portfolio Construction under Frictions: Grinold-Kahn Fundamental Law, Turnover Penalties, Transaction Cost Optimization, Risk Parity, and Fractional Kelly Sizing

Deep End Era. Engineering with Sankalp · Oct 29, 2026 · 1h 49m

An attractive paper portfolio can fail once turnover, trading costs and constraints enter the problem. This episode connects the Grinold-Kahn fundamental law and effective breadth with regularization, single- and multi-period optimization, risk parity, diversification and uncertainty-aware fractional Kelly sizing.

Chapters

00:00:00 Chapter 1: Cold Open — Why Richard Michaud Called Unconstrained Markowitz Optimization an "Error-Maximizer"—And Why a Paper Sharpe Ratio of 3.5 Bleeds to Death in Live Execution!

00:06:26 Chapter 2: The Grinold-Kahn Fundamental Law of Active Management ($\text{IR}…