I investigate the question of how to construct a benchmark replicating portfolio consisting of a subset of the benchmark’s components. I consider two approaches: a sequential stepwise regression and another method based on factor models of security returns´ first and second moments. The first...

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...

In this article, I propose an extension of the Treynor-Black model to a case where the investor is not fully invested in the stock market at the outset and there is no need to explicitly specify securities' expected returns. I derive explicit tangent portfolio weights based on a factor model of...