PT  - JOURNAL ARTICLE
ED  - ,
TI  - Making a Long Story Short
DP  - 2008 Jun 20
TA  - Special Issues
PG  - 148--157
VI  - 2008
IP  - 1
4099  - https://pm-research.com/content/2008/1/148.short
4100  - https://pm-research.com/content/2008/1/148.full
AB  - In light of the increasing use of short extension strategies by institutional investors, this article summarizes actionable findings from four pieces of research that have added to the understanding and effective implementation of these strategies. The research provides support for a loosening of the traditional long-only portfolio constraint, shows that a modest short extension can improve a portfolio's information efficiency, and puts forth a framework to account for the factors that drive the appropriate levels of short extension. Analysis of these factors indicates that a fixed constraint on the short extension may reduce the portfolio's information efficiency over time. A key conclusion from the collective research is that there is no “one size fits all” short extension strategy. An investor must balance the size of the short extension, the desired tracking error, and the manager's skill in order to successfully employ a short extension approach.