TITLE:
Portfolio Construction for Value Appreciation
AUTHORS:
Michael Ha, George Z. Liu, Lihui Zheng
KEYWORDS:
Tracking Error, Beta, Valuation, Exposure, Monitoring, Rebalance
JOURNAL NAME:
Journal of Applied Mathematics and Physics,
Vol.4 No.4,
April
13,
2016
ABSTRACT: Background: While working as risk
consultants at Barra in 1990’s, the first two authors decided to start
collaborating on a research project with its first paper titled “Application of
Volatility in Portfolio Construction” [1]. The third author was then a risk
manager of a financial institution which was a client of Barra’s. Bringing his
expertise in portfolio risk management, he joined the research team. Aim: The
core of this paper lies in the construction of an investment portfolio with a
main objective of value appreciation while examining its tracking error [1]-[3],
a risk measurement with reference to a benchmark [1] [4]. The authors believe, while
tracking error measurement is a common tool for portfolio risk management, total
risk measurement is more important. The management goal is to minimize
drawbacks using the technique of risk budgeting. These topics will be discussed
in future research papers.