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What is the overall performance of the risky portfolio using the Sharpe measure

Axel Stock

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Abstract

2. Consider portfolio construction using the single-index model. The alpha of an active portfolio is 2%. The expected return on the market index is 12%. The standard deviation of the return on the market portfolio is 2%. The nonsystematic standard deviation of the active portfolio is 1.4142%. The riskfree rate of return is 3%. The beta of the active portfolio is 1.15. What is the optimal proportion to invest in the active portfolio?

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What this paper is about

2. Consider portfolio construction using the single-index model. The alpha of an active portfolio is 2%. The expected return on the market index is 12%. The standard deviation of the return on the market portfolio is 2%. The nonsystematic standard deviation of the active portfolio is 1.4142%. The riskfree rate of return is 3%. The beta of the active portfolio is 1.15. What is the optimal proportion to invest in the active portfolio?

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Available abstract

2. Consider portfolio construction using the single-index model. The alpha of an active portfolio is 2%. The expected return on the market index is 12%. The standard deviation of the return on the market portfolio is 2%. The nonsystematic standard deviation of the active portfolio is 1.4142%. The riskfree rate of return is 3%. The beta of the active portfolio is 1.15. What is the optimal proportion to invest in the active portfolio?

Key concepts: Portfolio, Rate of return on a portfolio, Portfolio optimization, Sharpe ratio, Modern portfolio theory, Standard deviation, Economics, Econometrics

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