985数量经济与金融系列讲座第156期：The Fundamental Law of Active Portfolio Management: Time Series Dynamics and Cross Sectional Properties

题目: The Fundamental Law of Active Portfolio Management: Time Series Dynamics and Cross Sectional Properties

主讲人: Ding, Zhuanxin Analytic Investors, USA

Abstract

I derive a generalized version of the fundamental law of active management under some weak **conditions. I show that the original fundamental law of Grinold and various extensions are special cases of the result presented in this paper. I also show that cross-sectional ICs are usually different from time series ICs even if the time series ICs are all the same across securities. The fundamental law derived in this paper is robust to forecast model specification. My results show that the variation in IC has a much bigger impact to portfolio IR than the breadth N for a typical investment universe. I extend the fundamental law to models with multiple factors and study the impact of missing one or more return or risk factorsto portfolio IR.