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The Journal of Portfolio Management

The Journal of Portfolio Management

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Index Tracking by Means of Optimized Sampling

Kees van Montfort, Elout Visser and Laurens Fijn van Draat
The Journal of Portfolio Management Winter 2008, 34 (2) 143-152; DOI: https://doi.org/10.3905/jpm.2008.701625
Kees van Montfort
A professor at Vrije Universiteit Amsterdam and Nyenrode Business Universiteit in Amsterdam, The Netherlands.
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  • For correspondence: kvmontfort@feweb.vu.nl
Elout Visser
A researcher at Ortec in Amsterdam, The Netherlands.
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  • For correspondence: evisser@ortec.nl
Laurens Fijn van Draat
A researcher at Ortec in Gouda, The Netherlands.
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  • For correspondence: lfijnvandraat@ortec.nl
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Abstract

We read often that investors are frequently satisfied with an average return, such as the return on an index. To develop a universally applicable model for constructing a portfolio that tracks an index as accurately as possible, one should focus primarily on its practical use in the period after optimization. The objective is to define a limited number of stocks for the portfolio and to maintain it with minimal transaction costs. The approach proposed here requires fewer undesirable assumptions than we see in other approaches to indexing. One-year backtests of the model with the MSCI Europe Index indicate that the optimized index portfolio performs much like the index.

TOPICS: Portfolio construction, passive strategies, performance measurement

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Vol. 34, Issue 2
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Index Tracking by Means of Optimized Sampling
Kees van Montfort, Elout Visser, Laurens Fijn van Draat
The Journal of Portfolio Management Jan 2008, 34 (2) 143-152; DOI: 10.3905/jpm.2008.701625

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Index Tracking by Means of Optimized Sampling
Kees van Montfort, Elout Visser, Laurens Fijn van Draat
The Journal of Portfolio Management Jan 2008, 34 (2) 143-152; DOI: 10.3905/jpm.2008.701625
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