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Article
Publication date: 1 January 2004

JOHN R. AULERICH

In most portfolio performance studies, a reference portfolio is used to assess the performance of a portfolio manager. The choice of an appropriate reference portfolio is…

Abstract

In most portfolio performance studies, a reference portfolio is used to assess the performance of a portfolio manager. The choice of an appropriate reference portfolio is essential to yield a fair and unbiased evaluation of the manager. In the following analyses, category‐based benchmarks are assessed against established benchmarks to evaluate, which alternative accurately evaluates a portfolio manager's performance. The results indicate that the category‐based benchmarks are more appropriate comparison reference for evaluating the systematic risk of equity portfolios and equity security returns.

Details

Studies in Economics and Finance, vol. 22 no. 1
Type: Research Article
ISSN: 1086-7376

Open Access
Article
Publication date: 7 June 2021

Jan Frederick Hausner and Gary van Vuuren

Using a portfolio comprising liquid global stocks and bonds, this study aims to limit absolute risk to that of a standardised benchmark and determine whether this has a…

1243

Abstract

Purpose

Using a portfolio comprising liquid global stocks and bonds, this study aims to limit absolute risk to that of a standardised benchmark and determine whether this has a significant impact on expected return in both high volatility period (HV) and low volatility period (LV).

Design/methodology/approach

Using a traditional benchmark comprising 40% equity and 60% bonds, a constant tracking error (TE) frontier was constructed and implemented. Portfolio performance for different TE constraints and different economic periods (expansion and contraction) was explored.

Findings

Results indicate that during HV, replicating benchmark portfolio risk produces portfolios that outperform both the maximum return (MR) portfolio and the benchmark. MR portfolios outperform those with the same risk as that of the benchmark in LV. The MR portfolio weights assets to obtain the highest return on the TE frontier. During HV, the benchmark replicated risk portfolio obtained a higher absolute risk value than that of the MR portfolio because of an inefficient benchmark. In HV, the benchmark replicated risk portfolio favoured intermediate maturity treasury bills.

Originality/value

There is a dearth of literature exploring the performance of active portfolios subject to TE constraints. This work addresses this gap and demonstrates, for the first time, the relative portfolio performance of several standard portfolio choices on the frontier.

Details

Journal of Economics, Finance and Administrative Science, vol. 26 no. 51
Type: Research Article
ISSN: 2077-1886

Keywords

Article
Publication date: 9 May 2016

Ioannis Papantonis

The purpose of this paper is to present an alternative approach to equity trading that is based on cointegration. If there are long-run equilibria among financial assets, a…

Abstract

Purpose

The purpose of this paper is to present an alternative approach to equity trading that is based on cointegration. If there are long-run equilibria among financial assets, a cointegration-based trading strategy can exploit profitable opportunities by capturing mean-reverting short-run deviations.

Design/methodology/approach

First, the author introduces an equity indexing technique to form cointegration tracking portfolios that are able to replicate an index effectively. The author later enhances this tracking methodology in order to construct more complex portfolio-trading strategies that can be approximately market neutral. The author monitors the performance of a wide range of trading strategies under different specifications, and conducts an in-depth sensitivity analysis of the factors that affect the optimal portfolio construction. Several statistical-arbitrage tests are also carried out in order to examine whether the profitability of the cointegration-based trading strategies could indicate a market inefficiency.

Findings

The author shows that under certain parameter specifications, an efficient tracking portfolio is able to produce similar patterns in terms of returns and volatility with the market. The author also finds that a successful long-short strategy of two cointegration portfolios can yield an annualized return of more than 8 percent, outperforming the benchmark and also demonstrating insignificant correlation with the market. Even though some cointegration-based pairs-trading strategies can consistently generate significant cumulative profits, yet they do not seem to converge to risk-less arbitrages, and thus the hypothesis of market efficiency cannot be rejected.

Originality/value

The primary contribution of the research lies within the detailed analysis of the factors that affect the tracking-portfolio performance, thus revealing the optimal conditions that can lead to enhanced returns. Results indicate that cointegration can provide the means to successfully reproducing the risk-return profile of a benchmark and to implementing market-neutral strategies with consistent profitability. By testing for statistical arbitrage, the author also provides new evidence regarding the connection between the profit accumulation of cointegration-based pairs-trading strategies and market efficiency.

Article
Publication date: 29 March 2022

Taran Kaur and Priya Solomon

Many corporates in India are constantly adapting real estate benchmarks to reduce the workspace maintenance cost. However, anecdotally benchmarking the experience of clients while…

213

Abstract

Purpose

Many corporates in India are constantly adapting real estate benchmarks to reduce the workspace maintenance cost. However, anecdotally benchmarking the experience of clients while designing the workspace maintenance policies is not adequately taken into consideration in India. The focus of this study is on benchmarking workspace usage based on client usability.

Design/methodology/approach

The research is descriptive in nature. A structured questionnaire was sent to Information Technology (IT) companies in India to collect data through SurveyMonkey. Stratified sampling was used to collect a sample of 697 respondents which was also verified using G* software. The data collected was analysed using descriptive statistics and partial least square–structured equation modeling (PLS-SEM) to investigate the mediating effect of benchmarking the workspace usage on portfolio optimization and client satisfaction.

Findings

The structural model results obtained through the bootstrapping technique show that benchmarking workspace usage for real estate management positively impacts client satisfaction in the Indian IT workspace. The findings of this study support the full mediation effect (97%) and indicate that benchmarking practices are necessary for developing strategies for optimal portfolio asset utilization and are essential to survive in the current competitive business environment.

Research limitations/implications

The findings of this study were influenced by the feedback from the top 100 IT clients in India. The research findings vary according to the cost-benefit analysis of adopting benchmarking measures in small and medium-sized IT companies which still benchmark the workspace usage based on cost-saving measures. Also, very sparse research has been conducted in the workspace management domain of IT firms, so the results of this study can further be used as a reference to explore this area.

Practical implications

The study provides useful insights into how benchmarking in the workspace management domain of the CRE industry can be applied to address portfolio-related challenges, divergent client needs and improve workspace usability following energy-efficient policies. Practitioners can use this study as a guide to develop more effective workspace management policies.

Social implications

This study may guide other firms to benchmark their current workspace usage and evaluate the impact of their workspace management policies based on the theoretical framework of value-added balanced benchmarking criteria.

Originality/value

This research adds value to the limited literature available on the impact of technology-enabled portfolio optimization techniques through benchmarking which can reduce workspace usage and enhance the usability of the workspace.

Details

Benchmarking: An International Journal, vol. 30 no. 2
Type: Research Article
ISSN: 1463-5771

Keywords

Article
Publication date: 1 January 2000

Kavous Ardalan

It is now common for finance textbooks to discuss the concepts of the CAPM, diversification benefit, and systematic risk, as measured by beta. The purpose of this paper is to…

1061

Abstract

It is now common for finance textbooks to discuss the concepts of the CAPM, diversification benefit, and systematic risk, as measured by beta. The purpose of this paper is to clarify aspects of these concepts and make the textbooks readers aware of them. In particular, this paper seeks to: (1) clarify the notion that “diversification reduces risk,” (2) provide geometric expositions and algebraic expressions of portfolio benefits in the context of both total risk and market risk, and (3) improve the interpretation of beta.

Details

Humanomics, vol. 16 no. 1
Type: Research Article
ISSN: 0828-8666

Article
Publication date: 21 October 2019

Tom Messmore and Travis L. Jones

Prior research has demonstrated that investment management performance fees have the characteristic of a call option. It is important to examine whether these performance fees are…

Abstract

Purpose

Prior research has demonstrated that investment management performance fees have the characteristic of a call option. It is important to examine whether these performance fees are consistent with traditional fee structures used by investment managers. It is also worth examining whether clients or managers benefit significantly more than the other party under performance fee structures. The paper aims to discuss these issues.

Design/methodology/approach

The authors use Black-Scholes options pricing methodology to examine three cases of performance fee structures. The Absolute Hurdle case examines the fee structure where the manager receives a portion of the return over a pre-defined absolute rate of return. The Benchmark Relative Hurdle case shows a fee structure based on performance in excess of the return of a benchmark portfolio. The Breakeven Relative Hurdle case illustrates the fee structure where there is revenue neutrality with the classic management fees when portfolio performance matches the benchmark.

Findings

The findings of this paper illustrate that a particular performance fee structure can be designed to have the same revenue as a traditional investment management fee structure. Such a structure is equally beneficial to both the investment manager and to the client and should have salutary motivational effects to improve investment results, while simultaneously rewarding the manager for value added at a fair price for both the manager and the investor.

Originality/value

This study is unique in that it examines three cases of performance fees and provides a comparison between performance fee structures and traditional investment management fee structures. The findings will assist investment portfolio managers in better setting management fees they charge clients. In addition, this study help with clients who feel they are being charged excessive management fees by their investment manager.

Details

Managerial Finance, vol. 46 no. 1
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 18 August 2022

Hans Philipp Wanger and Andreas Oehler

The purpose of this paper is to investigate whether downside-risk measures help to explain why households largely refrain from investing in Exchange Traded Funds that replicate…

Abstract

Purpose

The purpose of this paper is to investigate whether downside-risk measures help to explain why households largely refrain from investing in Exchange Traded Funds that replicate broad and internationally diversified market indices, so-called XTFs, although studies frequently recommend to do so.

Design/methodology/approach

The paper analyzes whether evaluating risk in terms of downside-risk measures which reflect households' interpretation of risk closer than the standard deviation (SD) of returns, yields less risk-return-enhancements, and thus, fewer incentives for households to invest in XTFs. Household portfolios are compiled by combining stylized portfolio compositions that involve multiple asset classes and German households' security holdings. The data set covers the period from January 2014 to December 2016 and includes 47,388 securities.

Findings

The results indicate that none of the downside-risk measures can help to explain the reluctance of households to invest in XTFs. On the flip side, the results show that all stylized household portfolios can enhance the risk-return position from employing XTFs, regardless of the underlying risk measure. This supports the advice to invest in XTFs and extends it upon households that evaluate risk in terms of downside-risk.

Originality/value

To the best of the authors' knowledge, this study is the first to investigate risk-return-enhancements from XTFs while simultaneously considering various downside-risk measures and multiple asset classes of household portfolios.

Details

Review of Behavioral Finance, vol. 15 no. 3
Type: Research Article
ISSN: 1940-5979

Keywords

Article
Publication date: 1 October 2005

Stephen Lee and Simon Stevenson

The question as to whether it is better to diversify a real estate portfolio within a property type across the regions or within a region across the property types is one of…

2393

Abstract

Purpose

The question as to whether it is better to diversify a real estate portfolio within a property type across the regions or within a region across the property types is one of continuing interest for academics and practitioners alike. However, this study is somewhat different from the usual sector/regional analysis in that this study is designed to investigate whether a real estate fund manager can obtain a statistically significant improvement in risk/return performance from extending out of a London based portfolio into firstly the rest of the South East of England and then into the remainder of the UK, or whether the manger would be better off staying within London and diversifying across the various property types.

Design/methodology/approach

In order to examine these issues we form a number of portfolios that can be directly compared to a number of benchmark portfolios, as well as to each other. Then using the statistical tests developed by Gibbons et al. and Jobson and Korkie, we investigate whether the benefits that accrue from the differing diversification strategies are statistically significant or not.

Findings

The results show that staying within only one sector and one region (London) is undesirable in terms of risk and return compared with all three benchmark portfolios considered here. Secondly diversification on a naïve basis, or in an optimal fashion, leads to significant improvements in performance, irrespective of whether it is across different property types within London or within the same sector across the regions. Finally the results indicate that staying within London and diversifying across the various property types may offer performance comparable with regional diversification, although this conclusion largely depends on the time period and the fund manager's ability to diversify efficiently.

Originality/value

The results suggest that diversification almost always offers increased performance. Indeed a little diversification can quickly lead to levels of performance that is superior to number of benchmarks as well as performance insignificantly different from that of the most diversified portfolio that could be constructed! Consequently fund managers should be encouraged to diversify, be it across the regions or across the sectors of the UK.

Details

Journal of Property Investment & Finance, vol. 23 no. 5
Type: Research Article
ISSN: 1463-578X

Keywords

Article
Publication date: 10 August 2015

Prateek Sharma and Samit Paul

The purpose of this paper is to utilize a constrained random portfolio-based framework for measuring the skill of a cross-section of Indian mutual fund managers. Specifically, the…

1202

Abstract

Purpose

The purpose of this paper is to utilize a constrained random portfolio-based framework for measuring the skill of a cross-section of Indian mutual fund managers. Specifically, the authors test whether the observed performance implies superior investment skill on the part of mutual fund managers. Additionally, the authors investigate the suitability of mutual fund investments under diverse investor expectations.

Design/methodology/approach

The authors use a new skill measurement methodology based on a cross-section of constrained random portfolios (Burns, 2007).

Findings

The authors find no evidence of superior investment skill in the sample of Indian equity mutual funds. Using a series of statistical tests, the authors conclude that the mutual funds fail to outperform the random portfolios. Furthermore, mutual funds show no persistence in their performance over time. These results are robust to choice of performance measure and the investment horizon. However, mutual funds provide lower downside risks and may be suitable for investors with high degree of risk aversion.

Originality/value

The authors extend Burns’ (2007) methodology in several aspects, especially by using a much wider range of performance and downside risk measures to address diverse investor expectations. To the best of the authors’ knowledge, this is first study to apply the constrained random portfolios-based skill tests in an emerging market.

Details

Managerial Finance, vol. 41 no. 8
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 6 July 2012

E. Hachemi Aliouche, Fred Kaen and Udo Schlentrich

This paper's aim is to examine the risk‐adjusted market performance of an overall franchise and three sub‐sector franchise common stock portfolios from 1990 through 2008.

2205

Abstract

Purpose

This paper's aim is to examine the risk‐adjusted market performance of an overall franchise and three sub‐sector franchise common stock portfolios from 1990 through 2008.

Design/methodology/approach

Four sets of franchise sector portfolios are constructed, their returns are calculated, and their performances relative to three market benchmarks are evaluated using the Sharpe ratio and Jensen's α.

Findings

The all franchise portfolio significantly outperformed the three market benchmarks. Among the sector portfolios, the services and restaurant portfolios also outperformed the market benchmarks, but not the lodging portfolio. Results support the theoretical hypothesis that franchising may provide superior advantages to investors and point to a possible “franchising anomaly”. Investors consider franchise firms to be less risky than the average publicly traded firms and therefore require a lower rate of return.

Practical implications

The results of the study suggest that in the past, franchise managers may have paid a much higher cost of capital than warranted by their firms' risk characteristics. Study results also have positive implications for franchise firms' access to capital and for evaluating franchise managers' compensation arrangements. Investors should consider allocating a portion of their investible funds to franchise stocks. Many lodging firms may not have taken full advantage of the benefits of franchising to reduce their financial risks. Restaurant firms may further improve their financial performance by selling their riskier units.

Originality/value

This is the first comprehensive study of the risk‐adjusted market performance of franchise firms over an extended period of time covering a variety of economic conditions that also analyzes the risk‐adjusted performance of the main business subcategories in franchising.

Details

International Journal of Contemporary Hospitality Management, vol. 24 no. 5
Type: Research Article
ISSN: 0959-6119

Keywords

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