PT  - JOURNAL ARTICLE
AU  - Andrew W. Lo
AU  - Pankaj N. Patel
TI  - 130/30
DP  - 2008 Jun 20
TA  - Special Issues
PG  - 186--211
VI  - 2008
IP  - 1
4099  - https://pm-research.com/content/2008/1/186.short
4100  - https://pm-research.com/content/2008/1/186.full
AB  - Long-only portfolio managers and investors have acknowledged that the long-only constraint is a potentially costly drag on performance and loosening this constraint can add value, but the extent of the performance drag is difficult to measure without a proper benchmark for a 130/30 portfolio. A passive but dynamic benchmark can be developed, consisting of a plain-vanilla 130/30 strategy using simple factors to rank stocks and standard methods for construction of portfolios based on these rankings. Two types of indexes are produced—investable and look-ahead indexes; the former uses only prior information, and the latter uses realized returns to set an upper bound on performance. Historical simulations of these 130/30 benchmarks illustrate their advantages and disadvantages under various market conditions.