http://repub.eur.nl/res/aut/1494/ List of Publications en http://repub.eur.nl/static-eur/img/logo.png http://repub.eur.nl http://repub.eur.nl/res/pub/10868/ 2007-12-20T00:00:00Z Under his own preference, how should an investor coordinate the asset managers such that his aggregated portfolio is optimized? The efficiency of each managed sub portfolio and the aggregation of all the sub portfolios are the 2 main underlying problems considered in this dissertation. Contrary to popular believes, the tracking error volatility (TEV) optimization, commonly used to find the optimal active portfolio, often yields inferior portfolio choices. The results in this dissertation together with those in Jagannathan and Ma (2003) underscore how effective simple portfolio optimization techniques can be. In aggregating all the sub portfolios, the investor’s choice is limited if the managers only report the local optimal portfolio. Since the reported portfolios are the result of a stand-alone optimization within the sub portfolio while disregarding all the rest, each reported portfolio can only be optimal locally. A rational investor should and must demand for more choices than the locally optimal choice alone. Using simple examples in the single and multi period setting, this dissertation illustrates how significant the improvement in aggregated portfolio performance can be, both in terms of expectation as well as realization. Given the insufficiency of the TEV optimization, the inherent question is whether the active performance measures like the information ratio still suffice in judging a manager’s performance. As it turns out, the investor should be very careful when applying the active performance measures. Preferably, the Sharpe ratio should be used to judge the added value of a manager to the aggregated portfolio. http://repub.eur.nl/res/pub/10686/ 2004-03-01T00:00:00Z In this paper we present and illustrate using real-life data a framework for managing an investment portfolio in which the investment opportunities are described in terms of a set of attributes and part of this set is intended to capture the effects on society. Here we link with the emerging literature on SRI: socially responsible investment. Given the multi-attribute descriptions of the individual investment opportunities we show how these can be combined into portfolios with the same attributes at the portfolio level. Also we show how a manager can systematically be supported in the choice between different portfolio profiles. As part of the framework we use multi-criteria decision tools. http://repub.eur.nl/res/pub/426/ 2003-06-04T00:00:00Z Large institutional investors allocate their funds over a number of classes (e.g. equity, fixed income and real estate), various geographical regions and different industries. In practice, these allocation decisions are usually made in a hierarchical (top-down), consecutive way. At the higher decision level, the allocation is made on basis of benchmark portfolios (indexes). Such indexes are then set as targets for the lower levels. For example, at the top level the allocation decision is made on the basis of asset class benchmark indexes, on the second level the decisions are made on the basis of sector benchmark indexes, etc. Obviously, the lower levels have considerable flexibility to deviate from these targets. That is the reason why targets often come with limits on the maximally allowed deviation (or "tracking error") from these targets. The potential consequences of deviations from the benchmark portfolios have received very little attention in the literature. In this paper, we discuss and illustrate this influence. The lower level tracking errors with respect to the benchmark indexes propagate to the top level. As a result the risk-return characteristics of the actual aggregate portfolio will be different from those of the initial benchmark-based portfolio. We illustrate this effect for a two level process to allocate funds over individual US stocks and sectors. We show that the benchmark allocation approaches used in practice yield inferior solutions when compared to a non-hierarchical approach where full information about individual lower level investment opportunities is available. Our results reveal that even small deviations from the benchmark portfolios can cause large shifts in the top-level risk-return space. This implies that the incorporation of lower level information in the initial top-level decision process will lead to a different (possibly better) allocation. http://repub.eur.nl/res/pub/205/ 2002-06-04T00:00:00Z In this paper we present and illustrate using real-life data a framework for managing an investment portfolio in which the investment opportunities are described in terms of a set of attributes and part of this set is intended to capture the effects on society. Here we link with the emerging literature on SRI: Socially Responsible Investment. Given the multifarious descriptions of the individual investment opportunities we show how these can be combined into portfolios with the same attributes at the portfolio level. Also we show how a manager can systematically be supported in the choice between different portfolio profiles. As part of the framework we use multi-criteria decision tools.