Portfolio performance under tracking error and benchmark volatility constraints
| Autor: | Gary van Vuuren, Jan Frederick Hausner |
|---|---|
| Jazyk: | angličtina |
| Rok vydání: | 2021 |
| Předmět: |
050208 finance
Bond 05 social sciences Absolute risk reduction Tracking error Active management 0502 economics and business Benchmark (computing) Econometrics ddc:330 Expected return Portfolio Limit (mathematics) 050207 economics Volatility (finance) General Economics Econometrics and Finance purl.org/pe-repo/ocde/ford#5.02.04 [https] Portfolio performance optimisation Mathematics |
| Zdroj: | Journal of Economics Finance and Administrative Studies (22180648) vol. 26 Issue 51 (2021) ESAN-Institucional Universidad ESAN instacron:ESAN |
| Popis: | Purpose Using a portfolio comprising liquid global stocks and bonds, this study aims to limit absolute risk to that of a standardised benchmark and determine whether this has a significant impact on expected return in both high volatility period (HV) and low volatility period (LV). Design/methodology/approach Using a traditional benchmark comprising 40% equity and 60% bonds, a constant tracking error (TE) frontier was constructed and implemented. Portfolio performance for different TE constraints and different economic periods (expansion and contraction) was explored. Findings Results indicate that during HV, replicating benchmark portfolio risk produces portfolios that outperform both the maximum return (MR) portfolio and the benchmark. MR portfolios outperform those with the same risk as that of the benchmark in LV. The MR portfolio weights assets to obtain the highest return on the TE frontier. During HV, the benchmark replicated risk portfolio obtained a higher absolute risk value than that of the MR portfolio because of an inefficient benchmark. In HV, the benchmark replicated risk portfolio favoured intermediate maturity treasury bills. Originality/value There is a dearth of literature exploring the performance of active portfolios subject to TE constraints. This work addresses this gap and demonstrates, for the first time, the relative portfolio performance of several standard portfolio choices on the frontier. |
| Databáze: | OpenAIRE |
| Externí odkaz: |
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