Study on Active Risk Budgeting and Manager's Portfolio Choice |
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Institution: | 1. University of Oxford, Saïd Business School, United Kingdom;2. University of St.Gallen, St.Gallen Institute of Management in Asia, Singapore;1. Henley Business School, University of Reading, Reading RG6 6UD, United Kingdom of Great Britain and Northern Ireland;2. Runstad Center for Real Estate Studies, University of Washington, 424 Gould Hall, Box 355740, Seattle, WA 98195-5740, United States of America |
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Abstract: | This article builds portfolio decision model under risk budgeting framework by decomposing active risk budgeting into gross budgets and structural budgets, and respectively, solves the model when the benchmark is efficient and nonefficient, then analyzes in detail the properties of optimal investment decision under the two different conditions. The results show that the efficiency of portfolio decision lies on the efficiency of benchmark completely; when benchmark is nonefficient, structural budgets determine the structure of portfolio, whereas gross budgets determine the degree which is the optimal portfolio deviating from the benchmark; smaller beta in structural budgets actually hedge the benchmark risk effectively, so it conduces to enhance the total return under the same total risk. |
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