In priciple random portfolios should be uniformly distributed over the feasible region. Common algorithms tend to concentrate portfolios near the boundary. While there is an argument that this may actually be better than a uniform distribution, it is of interest to know what difference the...

Problems with performance measurement using information ratios relative to a benchmark are exposed. Random portfolios (that obey constraints but disregard utility) are shown to measure investment skill effectively. Investment mandates can also be based on random portfolios - this allows active...

The quality of stock market predictions based on the winner of the Super Bowl is examined using permutation tests. These tests are very easy to perform in modern computing environments like the R language. One key point that comes to light is that the success rate of a prediction is not a good...

The current practice of fund management can be altered to improve the lot of both the investor and the fund manager. Tracking error constraints in mandates can be replaced by an evaluation of the added value provided to the investor by the fund manager. The value of the manager depends not only...

We explore the effective gain or loss in alpha from the point of view of the investor due to the volatility of a fund and its correlations to other asset classes. Fund managers and investors can be guided by this to increase the utility that is ultimately delivered to the investor. In this...

Realized tracking errors are examined for a series of optimized portfolios using various estimates for the variance matrix. It is clear that the benchmark should be added mathematically to the variance matrix using the constituent weights - this dramatically outperforms the case where the...

The estimation of value at risk using univariate GARCH models is examined. A long history of the Samp;P 500 is used to compare these estimators with several other common approaches to value at risk estimation. The test results indicate that GARCH estimates are superior to the other methods in...