How to calculate breadth: An evolution of the fundamental law of active portfolio management

Author: Buckle, David

Source: Journal of Asset Management, Volume 4, Number 6, 1 April 2004 , pp. 393-405(13)

Publisher: Palgrave Macmillan

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Abstract:

Grinold and Kahn's highly acclaimed fundamental law of active management has as a weak point the lack of a measurable definition of breadth. Buckle (2003) developed a more general model of active portfolio management that uses fewer assumptions than Grinold and Kahn, resulting in the generalised fundamental law of active management. This law unfortunately has quite a complex mathematical representation. By applying some of Grinold and Kahn's assumptions to this generalised law, however, one derives a semi-generalised law, which is identical in form to Grinold and Kahn's original law, but with a measurable definition of breadth. The simplicity of application of this semi-generalised law is illustrated in several worked examples.Journal of Asset Management (2004) 4, 393-405; doi:10.1057/palgrave.jam.2240118

Document Type: Research article

DOI: 10.1057/palgrave.jam.2240118

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