Matching Portfolios

29 Pages Posted: 21 May 2008 Last revised: 9 Nov 2010

Kevin Bartz

Harvard University

David Kane

Harvard University

Date Written: October 15, 2010

Abstract

We propose a portfolio performance measure which compares the return of a target portfolio against the return of a matching portfolio sharing the same exposures but holding different stocks. Treated as a benchmark, a matching portfolio provides an estimate of alpha because it shares the same characteristics as the target portfolio. Matching portfolios have three advantages over characteristic portfolios (Daniel et al., 1997). First, they can be matched on any number of characteristics without any overlap with the target portfolio. Second, matching portfolios can mimic any weighting structure, e.g., long-short and 130/30. Third, matching portfolios provide a measure of uncertainty for alpha.

Keywords: portfolio, benchmark, performance evaluation, matching, propensity score, rubin causal model

JEL Classification: C10, G11

Suggested Citation

Bartz, Kevin and Kane, David, Matching Portfolios (October 15, 2010). Available at SSRN: https://ssrn.com/abstract=1135361 or http://dx.doi.org/10.2139/ssrn.1135361

Kevin Bartz (Contact Author)

Harvard University ( email )

Science Center 7th floor
One Oxford Street
Cambridge, MA 02138-2901
United States

HOME PAGE: http://www.kevinbartz.com

David Kane

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

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