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- Title
130/30: The New Long-Only.
- Authors
Lo, Andrew W.; Patel, Pankaj N.
- Abstract
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.
- Subjects
SHORT selling (Securities); INDEX mutual funds; PORTFOLIO management (Investments); ASSET allocation; INVESTMENT analysis; STOCKS (Finance)
- Publication
Journal of Portfolio Management, 2008, Vol 34, Issue 2, p12
- ISSN
0095-4918
- Publication type
Article
- DOI
10.3905/jpm.2008.701615