Does anybody remember how many portfolios is too many to use the full replication indexing approach? Also, regarding some of the more recent threads: fellow AF users, listen to Jesus and just love each other. Amen, hommies.
when portfolio is more than 1000 stocks, full replication usually not most cost effective.
Really? Is it that many?
That’s what I recall from the text.
The text said needs to be <1000 liquid stocks - I remember that too.
thanks.
i have a q on full replication- honestly not exam related at all. so the text says that it’s self-rebalancing. what does this really mean? something like the MCSI today announces reconstitution (additions/deletions to the index), if you had fully replicated an index, you’d have to rebalance for these still. I guess most indices like the Russell for example usually just do it once a year. But I’d think that could potentially get expensive, no? Just for my general knowledge, when it says full replication is self-rebalancing, what does that mean? For splits and stock divis and stuff? depending on an index reconstitution, i’d think full replication in real life could be a bit costly sometimes w/ rebalancing? strat sampling then could maybe be better or worse depending on if the stock you’re in with that cell got kicked out of an index or not? just rambling, not test related at all, but saw the MCSI adds/drops names today and just got me thinking.
Additions/deletions are a whole separate thing…any index has to deal with that type of rebalancing. The idea with full replication is to avoid rebalancing that simply relates to regular volatility & moves in the value of the underlying stocks.
Makes sense. Just thinking out loud if you did strat sampling of maybe some of the larger constituents vs maybe names on the fringe, maybe all in your costs could be lower if you could avoid deletions, but chances are the deletion names prob are low percentage names anyways, so maybe it isn’t a huge deal or as you say just something that all passive strats have to deal with. Anyone in a quanty role that arbs these? You would have to think there is some small alpha in there shorting the deletions or buying the adds perhaps more so. Wonder how tactful big mutual index funds are in adds/deletions or if they just start up once the lists come out and consider it a cost of doing business. Thx for the reply. The textbook stuff makes sense. I wonder in practice if people really play these much or not.
bannisja Wrote: ------------------------------------------------------- > Makes sense. Just thinking out loud if you did > strat sampling of maybe some of the larger > constituents vs maybe names on the fringe, maybe > all in your costs could be lower if you could > avoid deletions, but chances are the deletion > names prob are low percentage names anyways, so > maybe it isn’t a huge deal or as you say just > something that all passive strats have to deal > with. Anyone in a quanty role that arbs these? > You would have to think there is some small alpha > in there shorting the deletions or buying the adds > perhaps more so. Wonder how tactful big mutual > index funds are in adds/deletions or if they just > start up once the lists come out and consider it a > cost of doing business. Thx for the reply. The > textbook stuff makes sense. I wonder in practice > if people really play these much or not. I think there’s strategy (at least on the long side that was discussed, I’d think the short side could be even more profitable if correct) on securities that are expected to become part of an index, I think they generally out-perform leading up to becoming incorporated into an index.