http://cfaleveltwo.wordpress.com/2008/0 ... ack-model/
(Although the Wikipedia entry for Treynor Black (TB) contains more detailed information, I prefer the above guide written in "plain" language..)
It sounds great in theory, although I'm not sure about its effectiveness in managing a Variable Portfolio according to HB's philosophies.. you would use the Permanent Portfolio as the "Passive/Market Portfolio" and the Variable Portfolio as the "Active Portfolio" which is presumed to offer a better return vs. risk than the Permanent (Passive) Portfolio.
You would need to estimate the amount of unsystematic risk and excess return (with respect to the PP) of each security in your VP. Generally speaking, the higher the alpha and the lower the unsystematic risk, the higher you'd want the weight of the VP security.
Just want to throw this idea if anyone has even remotely tried anything similar.. if not, I might post some results once I find the time to crunch the numbers..
Treynor-Black Variable Portfolio
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MachineGhost
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Re: Treynor-Black Variable Portfolio
It sounds like a bunch of ivory tower B.S. to find the optimal VP weight, but go for it. We could always be surprised.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!
Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet. I should not be considered as legally permitted to render such advice!