Please use this identifier to cite or link to this item: http://hdl.handle.net/2440/81861
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Type: Journal article
Title: Benchmark replication portfolio strategies
Author: Glabadanidis, P.
Zolotoy, L.
Citation: Journal of Asset Management, 2013; 14(2):95-110
Publisher: Palgrave Macmillan Ltd
Issue Date: 2013
ISSN: 1479-179X
1479-179X
Statement of
Responsibility: 
Paskalis Glabadanidis and Leon Zolotoy
Abstract: We propose a novel approach to the benchmark replication problem that uses a minimum tracking error variance as an objective subject to a target expected outperformance. When no budget constraint is imposed on the replicating portfolio, the solution is a two-fund portfolio involving the standard hedge portfolio and the tangent portfolio constructed using the replicating securities. In the presence of a budget constraint, the solution is a three-fund portfolio, which includes, in addition, the minimum variance portfolio constructed using the replicating securities. We implement our theoretical results using recent data for three widely followed US stock indices with very good out-of-sample performance.
Keywords: optimal portfolio weights; benchmarking; tracking error; target out performance
Rights: Copyright status unknown
RMID: 0020133943
DOI: 10.1057/jam.2013.6
Appears in Collections:Business School publications

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