PT  - JOURNAL ARTICLE
AU  - Richard C Grinold
AU  - Mark P Taylor
TI  - The Opportunity Set: <em>Market Opportunities and the Effective Breadth of a Portfolio</em>
AID  - 10.3905/JPM.2009.35.2.012
DP  - 2009 Jan 31
TA  - The Journal of Portfolio Management
PG  - 12--24
VI  - 35
IP  - 2
4099  - https://pm-research.com/content/35/2/12.short
4100  - https://pm-research.com/content/35/2/12.full
AB  - The opportunity set (OS) is an ex post measure of the maximum Sharpe ratio for a given universe of assets. As the authors show, the average value of the OS is approximately equal to the square root of portfolio breadth, or the number of assets in a portfolio. The authors thus suggest an interpretation of the OS to be the effective breadth of a portfolio. Effective breadth is higher when the volatility of asset returns is high because such an environment offers investors more opportunities for generating returns, which is tantamount to having greater portfolio breadth. When asset return volatility is lower, the opposite is true; that is, effective breadth is lower and investors are hard-pressed to generate excess returns at any risk level.TOPICS: Portfolio construction, statistical methods, in markets