Active portfolio managers try to construct a risky portfolio with _________.

Question

Quizplus · Accepted Answer

Active portfolio managers aim to outperform the passive strategies by constructing a risky portfolio with a higher Sharpe measure. The Sharpe measure is the excess return of a portfolio compared to the risk-free rate, divided by the standard deviation of the portfolio's returns. A higher Sharpe measure indicates a higher return for each unit of risk taken by the portfolio. Therefore, active managers aim to construct portfolios with a higher Sharpe measure than the passive strategies.

Active Portfolio Managers Try to Construct a Risky Portfolio with _________