SECURITIES SELECTION AND PORTFOLIO OPTIMIZATION: IS MONEY BEING LEFT ON THE TABLE?

摘要

In this report we ask the question, can fund managers form better-performing portfolios of stocks or bonds? In particular, can they take advantage of: 1) Single-index Capital Asset Pricing Models (CAPM), 2) Multi-factor models, or 3) Generalized CAPM (G-CAPM) to improve stock and bond mutual fund performance? And we find the following answers: 1) Using CAPM can increase gross annual returns by 70 basis points to 80 basis points, 2) Using multi-factor models can increase gross annual returns by 200 basis points or more, 3) Using G-CAPM can increase gross annual returns by 300 basis points or more.