Optimal omega-ratio portfolio performance constrained by tracking error

dc.contributor.authorGunning, Wade
dc.contributor.authorVan Vuuren, Gary
dc.date.accessioned2021-05-14T13:50:02Z
dc.date.available2021-05-14T13:50:02Z
dc.date.issued2020-09
dc.description.abstractThe mean-variance framework coupled with the Sharpe ratio identifies optimal portfolios under the passive investment style. Optimal portfolio identification under active investment approaches, where performance is measured relative to a benchmark, is less well-known. Active portfolios subject to tracking error (TE) constraints lie on distorted elliptical frontiers in return/risk space. Identifying optimal active portfolios, however defined, have only recently begun to be explored. The Ω – ratio considers both down and upside portfolio potential. Recent work has established a technique to determine optimal Ω – ratio portfolios under the passive investment approach. The authors apply the identification of optimal Ω – ratio portfolios to the active arena (i.e., to portfolios constrained by a TE) and find that while passive managers should always invest in maximum Ω – ratio portfolios, active managers should first establish market conditions (which determine the sign of the main axis slope of the constant TE frontier). Maximum Sharpe ratio portfolios should be engaged when this slope is > 0 and maximum Ω – ratios when < 0.en_ZA
dc.description.departmentMathematics and Applied Mathematicsen_ZA
dc.description.librarianpm2021en_ZA
dc.description.urihttps://businessperspectives.org/journals/investment-management-and-financial-innovations?category_id=30en_ZA
dc.identifier.citationWade Gunning and Gary van Vuuren (2020). Optimal omega-ratio portfolio performance constrained by tracking error. Investment Management and Financial Innovations, 17(3), 263-280. doi:10.21511/imfi.17(3).2020.20.en_ZA
dc.identifier.issn1810-4967 (print)
dc.identifier.issn1812-9358 (online)
dc.identifier.other10.21511/imfi.17(3).2020.20
dc.identifier.urihttp://hdl.handle.net/2263/79918
dc.language.isoenen_ZA
dc.publisherBusiness Perspectivesen_ZA
dc.rights© Wade Gunning, Gary van Vuuren, 2020. This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International license.en_ZA
dc.subjectTracking erroren_ZA
dc.subjectΩ – ratioen_ZA
dc.subjectOptimal portfolioen_ZA
dc.titleOptimal omega-ratio portfolio performance constrained by tracking erroren_ZA
dc.typeArticleen_ZA

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