Modern Portfolio Management with Conditioning Information
I-Hsuan Ethan Chiang
University of North Carolina (UNC) at Charlotte
March 18, 2008
This paper studies models in which active portfolio managers optimize performance relative to a benchmark and utilize conditioning information unavailable to their clients. We provide explicit solutions for the optimal strategies with multiple risky assets, with or without a risk free asset, and also consider various constraints on portfolio risk. The equilibrium implications of the models are discussed. A currency portfolio example shows that the optimal solutions improve the measured performance by 53% out of sample, compared with portfolios ignoring conditioning information.
Number of Pages in PDF File: 58
Keywords: Portfolio Management, Conditioning Information, Benchmark, Tracking Error
JEL Classification: C44, G11working papers series
Date posted: March 22, 2006 ; Last revised: March 20, 2008
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