PT  - JOURNAL ARTICLE
AU  - Roger G. Clarke
AU  - Harindra de Silva
AU  - Steven Sapra
TI  - Toward More Information-Efficient Portfolios
AID  - 10.3905/jpm.2004.443321
DP  - 2004 Oct 31
TA  - The Journal of Portfolio Management
PG  - 54--63
VI  - 31
IP  - 1
4099  - https://pm-research.com/content/31/1/54.short
4100  - https://pm-research.com/content/31/1/54.full
AB  - The long-only constraint imposed in traditional portfolios is one of the more severe constraints in terms of its impact on potential value-added, particularly for portfolios benchmarked to a capitalization-weighted benchmark such as the S&P 500; it can reduce the effectiveness of the manager's information by 50% or more. This loss can be avoided to a great degree by eliminating the long-only constraint or by creating a market-neutral portfolio with a derivatives overlay to restore market exposure. The information ratio can also be increased considerably using only underlying securities by allowing modest short positions and using the cash generated to purchase an equivalent amount of long positions, thus maintaining full market exposure.