 The Zero Capital Approach to Portfolio Enhancement and Overlay ManagementRoger Bowden No 33497, Working Paper Series from Victoria University of Wellington, School of Economics and Finance Abstract: Both active and passive portfolio enhancement can be analysed within a zero capital framework, wherein enhancement exposures are reported as an additional or secondary portfolio requiring zero capital. This enables an identification of the economic value added by the enhancement, using two complementary approaches. The first is based on traditional beta analysis which is useful in identifying the direction and magnitude of exposures. The second is non parametric in nature and plots ordered mean difference schedules for the enhancement against the base portfolio. This enables risk profiling where the manager can match the likely range of his or her own risk preferences again the empirical history of the relationship, so that explicit risk premiums do not have to be utilised. The empirical illustration exhibits asymmetries in the effectiveness of currency overlay. Keywords: Benchmarking; currency overlay; equivalent margin; international diversification; ordered mean difference; portfolio enhancement; value at risk (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:vuw:vuwecf:33497 Access Statistics for this paper More papers in Working Paper Series from Victoria University of Wellington, School of Economics and Finance Alice Fong, Administrator, School of Economics and Finance, Victoria Business School, Victoria University of Wellington, PO Box 600 Wellington, New Zealand. Contact information at EDIRC. |
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