Third Quarter (2007)

Xiaodong Xu and Bernd Scherer Many investment firms reward portfolio managers based on their performance. This article investigates a manager's optimal active risk policy using stochastic programming techniques. Our multiple-period model incorporates the most common incentive-fee structures, and captures the risk that the manager is fired for underperformance. In contrast to single-stage models, the manager… Read More

Martin L. Leibowitz and Anthony Bova Active equity strategies that are highly benchmark-centric will generally have a minimal impact on fund-level volatility. Since most US institutional portfolios are overwhelmingly dominated by their equity exposure, any incremental tracking error will be submerged by the beta effect. Positive alpha opportunities from tightly beta-targeted strategies can therefore be… Read More

Vikas Agarwal and Jayant R. Kale Recently, there has been explosive growth in two products from the hedge fund industry multi-strategy (MS) funds and funds of hedge funds (FOFs), both of which offer diversification across different hedge fund strategies. In well functioning markets, both investment vehicles should offer similar returns. Over the period 1994-2004, we… Read More

Harry M. Kat and Roel C. A. Oomen In this paper, we study the multivariate return properties of a large variety of commodity futures. We find that between commodity groupings (such as metals, energy, etc.) correlations are very low and mostly insignificant whereas within groups they tend to be much stronger. In addition, commodity futures… Read More