Lintner Redux: Omega Ratios and Managed Futures
| Jul 8th, 2009 | Filed under: Academic Research, Performance, Analytics & Metrics, Today's Post | By: Guest |
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(By Ranjan Bhaduri, PhD, CFA, CAIA, Member, AllAboutAlpha.com Editorial Board) Commodities have always had a reputation for risk, reward and volatility. Managed futures – a set of strategies aimed at harnessing the return potential of commodities (and of other financial instruments upon which futures contracts are written), has long played a central role in the alternative investment industry.
As you might expect, managed futures have always been more volatile than many of the alternative investment cousins. But does this mean they serve no role in a diversified portfolio?  Researcher and Harvard professor John Lintner addressed this question back in 1983 in a seminal paper presented at the Annual Conference of the Financial Analysts Federation in Toronto titled “The Potential Role of Managed Commodity-Financial Futures Accounts (and/or Funds) in Portfolios of Stocks and Bonds.”
Firstly, Lintner found the risk-adjusted return of a portfolio of managed futures to be higher than that of a traditional portfolio consisting of stocks and bonds. But he also observed that portfolios of stocks and/or bonds combined with managed futures showed substantially less risk at every possible level of expected return than portfolios of stocks and/or bonds alone. The following passage from Lintner’s work furnishes good insight on his findings: More…
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Could have saved yourself a lot of work if you had first taken a look at the Journal of Investment Management, Spring 2004. Skewness, kurtosis, mixing with the S&P 500, etc. It has all been done before.
Hi Harry,
Did you read the entire paper of the Lintner Revisited? I am guessing not, and I encourage you to read the Lintner Revisited paper – what we did in that paper was not done earlier.
Cheers,
Ranjan
Touche gentlemen!