@article {Herold61, author = {Ulf Herold}, title = {Portfolio Construction with Qualitative Forecasts}, volume = {30}, number = {1}, pages = {61--72}, year = {2003}, doi = {10.3905/jpm.2003.319920}, publisher = {Institutional Investor Journals Umbrella}, abstract = {The vast majority of active portfolio managers use a fundamental investment approach. They do not generate quantitative forecasts but instead express their market views in a qualitative manner. The portfolio construction approach in practice is usually purely ad hoc: overweighting assets with a bullish outlook by some prespecified amount, and underweighting assets for which the view is bearish. A structured approach for portfolio construction leads to a more consistent implementation of market views and to more balanced portfolios in terms of risk profile. This approach incorporates several diagnostic tools and a Bayesian model. It also allows a portfolio manager to compute the shrinkage in the information ratio when implementing a suboptimal portfolio. This mitigates the need for transactions and hence reduces transaction costs.}, issn = {0095-4918}, URL = {https://jpm.pm-research.com/content/30/1/61}, eprint = {https://jpm.pm-research.com/content/30/1/61.full.pdf}, journal = {The Journal of Portfolio Management} }