Benchmark Replication Portfolio Strategies

Journal of Asset Management Vol. 14, 2, 95–110

24th Australasian Finance and Banking Conference 2011 Paper

22 Pages Posted: 20 Aug 2011 Last revised: 24 Jun 2013

See all articles by Paskalis Glabadanidis

Paskalis Glabadanidis

University of Adelaide Business School; Financial Research Network (FIRN)

Leon Zolotoy

University of Melbourne - Melbourne Business School

Date Written: August 19, 2011

Abstract

We propose a novel approach to the benchmark replication problem which 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 involves that standard hedge portfolio and the tangent portfolio constructed from the replicating securities. In the presence of a budget constraint as well, the solution also includes the minimum variance portfolio constructed from 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

JEL Classification: G11, G12

Suggested Citation

Glabadanidis, Paskalis and Zolotoy, Leon, Benchmark Replication Portfolio Strategies (August 19, 2011). Journal of Asset Management Vol. 14, 2, 95–110; 24th Australasian Finance and Banking Conference 2011 Paper. Available at SSRN: https://ssrn.com/abstract=1912248 or http://dx.doi.org/10.2139/ssrn.1912248

Paskalis Glabadanidis (Contact Author)

University of Adelaide Business School ( email )

10 Pulteney Street
Adelaide, South Australia 5005
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Leon Zolotoy

University of Melbourne - Melbourne Business School ( email )

200 Leicester Street
Carlton, Victoria 3053 3186
Australia

Register to save articles to
your library

Register

Paper statistics

Downloads
270
rank
110,226
Abstract Views
1,266
PlumX Metrics