Quantifying the Maximum Worth of Portfolio Management in a Multi-Period Setting
34 Pages Posted: 5 Mar 2019
Date Written: January 2019
In this paper we present an approach to quantify the maximum worth of active portfolio management in a multi-period setting. This methodology estimates a hindsight upper bound on active management fees. The methodology is demonstrated in an empirical study for the Energy industry. In this study the BHCM derivative instrument considerably outperforms all other investment opportunities considered, net of management fees. The dominance of the BHCM derivative, net of management fees, is potentially sufficient to offset other investment and trading expenses. This suggests that the BHCM derivative could in fact be the optimal choice for the investor, rather than standard active or passive funds.
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