Performance maximization of actively managed funds

Arbeitspapier

Ratios that indicate the statistical significance of a fund's alpha typically appraise its performance. A growing literature suggests that even in the absence of any ability to predict returns, holding options positions on the benchmark assets or trading frequently can significantly enhance performance ratios. This paper derives the performance-maximizing strategy - a variant of buy-write - and the least upper bound on such performance enhancement, thereby showing that if common equity indexes are used as benchmarks, the potential performance enhancement from trading frequently is usually negligible. The enhancement from holding options can be substantial if the implied volatilities of the options are higher than the volatilities of the benchmark returns.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Staff Report ; No. 427

Classification and Topics

• Classification: Wirtschaft ; Portfolio Choice; Investment Decisions ; Asset Pricing; Trading Volume; Bond Interest Rates ; Contingent Pricing; Futures Pricing; option pricing ; Information and Market Efficiency; Event Studies; Insider Trading
• Subject: Alpha ; hedge funds ; mutual funds ; portfolio management ; options ; Portfolio-Management ; Hedgefonds ; Investmentfonds ; Unternehmenserfolg ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Guasoni, Paolo ; Huberman, Gur ; Wang, Zhenyu
• Event: Veröffentlichung
• (who): Federal Reserve Bank of New York
• (where): New York, NY
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/60766
• Last update: 10.03.2025, 11:45 AM CET