Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
7360805 | Journal of Empirical Finance | 2015 | 21 Pages |
Abstract
This paper studies models in which active portfolio managers utilize conditioning information unavailable to their clients to optimize performance relative to a benchmark. We derive explicit solutions for the optimal strategies with multiple risky assets, with or without a risk-free asset, and consider various constraints on portfolio risks or weights. The optimal strategies feature a mean-variance efficient component (to minimize portfolio variance), and a hedging demand for the benchmark portfolio (to maximize correlation with the benchmark). A currency portfolio example shows that the optimal strategies improve the measured performance by 53% out of sample, compared with portfolios ignoring conditioning information.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
I-Hsuan Ethan Chiang,