RT Journal Article
SR Electronic
T1 130/30
JF The Journal of Portfolio Management
FD Institutional Investor Journals
SP 12
OP 38
DO 10.3905/jpm.2008.701615
VO 34
IS 2
A1 Lo, Andrew W.
A1 Patel, Pankaj N.
YR 2008
UL http://jpm.pm-research.com/content/34/2/12.abstract
AB Long-only portfolio managers and investors have acknowledged that the long-only constraint is a potentially costly drag on performance, and loosening this constraint can add value, but the extent of the performance drag is difficult to measure without a proper benchmark for a 130/30 portfolio. A passive but dynamic benchmark can be developed, consisting of a plain-vanilla 130/30 strategy using simple factors to rank stocks and standard methods for construction of portfolios based on these rankings. Two types of indexes are produced—investable and look-ahead indexes; the former uses only prior information, and the latter uses realized returns to set an upper bound on performance. Historical simulations of these 130/30 benchmarks illustrate their advantages and disadvantages under various market conditions.TOPICS: Equity portfolio management, accounting and ratio analysis, portfolio theory