The Role of Cross-Sectional Dispersion in Active Portfolio Management

dc.contributor.authorWeigand, Robert A.
dc.contributor.authorSapra, Steven G.
dc.contributor.authorGorman, Larry R.en_US
dc.dateJuly 2009en_US
dc.date.accessioned2018-11-02T14:38:39Z
dc.date.available2018-11-02T14:38:39Z
dc.date.issued2009-07-1
dc.description.abstractWe show that relaxing one of modern portfolio theory's standard modeling assumptions--that stock returns are uncorrelated--leads to the result that cross-sectional dispersion replaces time-series volatility in many of the key technical expressions in the theory of active portfolio management. Cross-sectional dispersion is shown to be the relevant volatility variable in the derivation of the set of optimal active portfolio weights, and the appropriate scaling factor in the formulation of a manager's set of expected returns. Additionally, we show that mis-estimation of cross-sectional dispersion can have significant adverse affects on investor utility. Accurate forecast of both cross-sectional dispersion and manager skill are essential to building high-performance portfolios that meet ex ante risk and expected return expectations.en_US
dc.description.sponsorshipKaw Valley Banken_US
dc.format.mediumPDFen_US
dc.identifier.otherSchool of Business Working Paper Series; No. 113en_US
dc.identifier.urihttps://hdl.handle.net/10425/326
dc.language.isoen_USen_US
dc.publisherWashburn University. School of Businessen_US
dc.subjectAlphaen_US
dc.subjectVolatilityen_US
dc.subjectCross-sectional dispersionen_US
dc.subjectPortfolio managementen_US
dc.subjectActive portfolio managementen_US
dc.titleThe Role of Cross-Sectional Dispersion in Active Portfolio Managementen_US
dc.typeWorking paperen_US
washburn.identifier.cdm38en_US
washburn.identifier.oclc429073026en_US
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