Are you about to handcuff your information ratio?

Renato Staub ()
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Renato Staub: Asset Allocation & Currency, Global Investment Solutions, UBS Global Asset Management

Journal of Asset Management, 2007, vol. 7, issue 5, No 7, 358-370

Abstract: Abstract It is well known that short constraints impair portfolio efficiency, and most examinations provide evidence through constrained optimisations. But we think it is paramount to understand first how information must be translated to be in compliance with the fundamental law of active management (Flam). Hence, we simulate first signals and translate them into positions as suggested by Flam. Next, when hitting a constraint, we examine two separate effects that an optimiser does not distinguish: cutting off and subsequent reallocation. Both impair efficiency.

Keywords: active management; alpha; constraints; information ratio; long-short investing; security selection (search for similar items in EconPapers)
Date: 2007
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DOI: 10.1057/palgrave.jam.2250044

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