Tailoring Manager Allocation to Market Conditions Using Alpha Optimization: Part 1

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The assessment of a manager’s performance against his/her benchmark and peers is a mainstay of manager search and selection.  Such assessments assume that a manager’s performance history is informative as to the probability of future out performance.  However, a wealth of analysis has shown that the auto-correlation of manager returns is generally very low across styles and time periods.  In this paper, we extend alpha optimization into a manager selection framework.

Authors: Eric A. Stubbs, Ph.D., RBC Wealth Management and Enrique Jaen, Ph.D., RBC Weatlh Management

Tailoring Manager Allocation to Market Conditions Using Alpha Optimization: Part 1

The assessment of a manager's performance against his/her benchmark and peers is a mainstay of manager search and selection.  Such assessments assume that a manager's performance history is informative as to the probability of future outperformance.  However, a wealth of analysis has shown that the autocorrelation of manager returns is generally very low across styles and time periods.  In this paper, we extend alpha optimization into a manager selection framework.

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