How to calculate breadth: An evolution of the fundamental law of active portfolio management

David Buckle ()
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David Buckle: Merrill Lynch Investment Managers

Journal of Asset Management, 2004, vol. 4, issue 6, No 3, 393-405

Abstract: Abstract Grinold and Kahn's highly acclaimed fundamental law of active management has as a weak point the lack of a measurable definition of breadth. Buckle (2003) developed a more general model of active portfolio management that uses fewer assumptions than Grinold and Kahn, resulting in the generalised fundamental law of active management. This law unfortunately has quite a complex mathematical representation. By applying some of Grinold and Kahn's assumptions to this generalised law, however, one derives a semi-generalised law, which is identical in form to Grinold and Kahn's original law, but with a measurable definition of breadth. The simplicity of application of this semi-generalised law is illustrated in several worked examples.

Keywords: active portfolio management; fundamental law of active management; information ratio; information coefficient; breadth (search for similar items in EconPapers)
Date: 2004
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DOI: 10.1057/palgrave.jam.2240118

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