Unleveraged Portfolios and Pure Allocation Return

In asset management, the portfolio leverage affects performance, and can be subject to constraints and operational limitations. Due to the possible leverage aversion of the investors, the comparison between portfolio performances can be incomplete or misleading. We propose a procedure to unleverage...

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Autores principales:	Barbara Alemanni, Mario Maggi, Pierpaolo Uberti
Formato:	article
Lenguaje:	EN
Publicado:	MDPI AG 2021
Materias:	portfolio leverage asset allocation exchange traded funds Risk in industry. Risk management HD61 Finance HG1-9999
Acceso en línea:	https://doaj.org/article/e21eaf1ef7f0476f94c6c5eefcd57727
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id	oai:doaj.org-article:e21eaf1ef7f0476f94c6c5eefcd57727
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spelling	oai:doaj.org-article:e21eaf1ef7f0476f94c6c5eefcd577272021-11-25T18:08:44ZUnleveraged Portfolios and Pure Allocation Return10.3390/jrfm141105501911-80741911-8066https://doaj.org/article/e21eaf1ef7f0476f94c6c5eefcd577272021-11-01T00:00:00Zhttps://www.mdpi.com/1911-8074/14/11/550https://doaj.org/toc/1911-8066https://doaj.org/toc/1911-8074In asset management, the portfolio leverage affects performance, and can be subject to constraints and operational limitations. Due to the possible leverage aversion of the investors, the comparison between portfolio performances can be incomplete or misleading. We propose a procedure to unleverage the mean-variance efficient portfolios to satisfy a leverage requirement. We obtain a class of unleveraged portfolios that are homogeneous in terms of leverage, so therefore properly comparable. The proposed unleverage procedure permits isolating the pure allocation return, i.e., the return component, due to the qualitative choice of portfolio allocation, from the return component due to the portfolio leverage. Theoretical analysis and empirical evidence on actual data show that efficient mean-variance portfolios, once unleveraged, uncover mean-variance dominance relations hidden by the leverage contribution to portfolio return. Our approach may be useful to practitioners proposing to take long positions on “short assets” (e.g. inverse ETF), thereby considering short positions as active investment choices, in contrast with the usual interpretation where are used to overweight long positions.Barbara AlemanniMario MaggiPierpaolo UbertiMDPI AGarticleportfolio leverageasset allocationexchange traded fundsRisk in industry. Risk managementHD61FinanceHG1-9999ENJournal of Risk and Financial Management, Vol 14, Iss 550, p 550 (2021)
institution	DOAJ
collection	DOAJ
language	EN
topic	portfolio leverage asset allocation exchange traded funds Risk in industry. Risk management HD61 Finance HG1-9999
spellingShingle	portfolio leverage asset allocation exchange traded funds Risk in industry. Risk management HD61 Finance HG1-9999 Barbara Alemanni Mario Maggi Pierpaolo Uberti Unleveraged Portfolios and Pure Allocation Return
description	In asset management, the portfolio leverage affects performance, and can be subject to constraints and operational limitations. Due to the possible leverage aversion of the investors, the comparison between portfolio performances can be incomplete or misleading. We propose a procedure to unleverage the mean-variance efficient portfolios to satisfy a leverage requirement. We obtain a class of unleveraged portfolios that are homogeneous in terms of leverage, so therefore properly comparable. The proposed unleverage procedure permits isolating the pure allocation return, i.e., the return component, due to the qualitative choice of portfolio allocation, from the return component due to the portfolio leverage. Theoretical analysis and empirical evidence on actual data show that efficient mean-variance portfolios, once unleveraged, uncover mean-variance dominance relations hidden by the leverage contribution to portfolio return. Our approach may be useful to practitioners proposing to take long positions on “short assets” (e.g. inverse ETF), thereby considering short positions as active investment choices, in contrast with the usual interpretation where are used to overweight long positions.
format	article
author	Barbara Alemanni Mario Maggi Pierpaolo Uberti
author_facet	Barbara Alemanni Mario Maggi Pierpaolo Uberti
author_sort	Barbara Alemanni
title	Unleveraged Portfolios and Pure Allocation Return
title_short	Unleveraged Portfolios and Pure Allocation Return
title_full	Unleveraged Portfolios and Pure Allocation Return
title_fullStr	Unleveraged Portfolios and Pure Allocation Return
title_full_unstemmed	Unleveraged Portfolios and Pure Allocation Return
title_sort	unleveraged portfolios and pure allocation return
publisher	MDPI AG
publishDate	2021
url	https://doaj.org/article/e21eaf1ef7f0476f94c6c5eefcd57727
work_keys_str_mv	AT barbaraalemanni unleveragedportfoliosandpureallocationreturn AT mariomaggi unleveragedportfoliosandpureallocationreturn AT pierpaolouberti unleveragedportfoliosandpureallocationreturn
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Unleveraged Portfolios and Pure Allocation Return

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