CTEF variable and its breadth components reported in Chapter 8 (see
Table 9.3). The only statistically significant sector exposure in the CTEF
variable and the R&D quadratic variable portfolio construction process is
the health care sector exposure.
A lambda tilt value of 1 is initially used in producing efficient portfo-
lios. Active returns rise as the average stock size diminishes, a result consis-
tent with the inefficient markets literature summarized in Dimson (1988)
240 THE OPTIMIZATION OF EFFICIENT PORTFOLIOS
TABLE 9.2 CTEF Variable Active Returns with R&D Tilt, Russell 1000 Universe.
Attribution Analysis: Annualized Contributions to Total Return
Contribution Risk Info
Source of Return (% Return) (% Std Dev) Ratio T-Stat
Risk Free 4.93 N/A N/A N/A
Total Benchmark 13.58 14.52
Expected Active 0.03 N/A N/A N/A
Market Timing 0.46 0.72 0.53 1.84
Risk Indexes 2.20 1.68 1.14 3.93
Sectors 0.65 2.95 0.20 0.70
Asset Selection 1.35 3.60 0.36 1.24
Total Exceptionally Active 4.67 5.05 0.83 2.86
Total Active 4.71 5.05 0.84 2.88
Total Managed 18.29 15.24
TABLE 9.3 CTEF Variable Factor Exposures with R&D Tilt, Russell 1000
Universe. Attribution Report: Annualized Contributions to Risk Index Return
AverageContribution (% Return) TotalSource Active Average Variation Total Risk Info
of Return Exposure [1] [2] [1+2] (% Std Dev) Ratio T-Stat
Volatility –0.01 0.01 0.16 0.18 0.22 0.69 2.39
Momentum –0.01 0.01 0.02 0.03 0.49 0.05 0.19
Size –0.32 0.57 0.86 1.43 1.55 0.79 2.72
Size Nonlinearity –0.04 0.03 -0.10 –0.07 0.20 –0.30 –1.02
Trading Activity 0.09 0.04 0.10 0.14 0.28 0.49 1.68
Growth –0.18 0.17 –0.02 0.15 0.36 0.37 1.28
Earnings Yield 0.11 0.55 –0.12 0.44 0.30 1.25 4.32
Value 0.07 0.04 –0.01 0.03 0.18 0.12 0.43
Earnings Variation 0.05 –0.06 –0.03 –0.09 0.17 –0.43 –1.48
Leverage –0.02 0.00 –0.04 –0.03 0.16 –0.18 –0.63
Currency Sensitivity 0.01 –0.01 –0.07 –0.07 0.15 –0.42 –1.45
Yield –0.02 0.00 0.08 0.08 0.22 0.31 1.07
Non-Est Universe 0.00 0.01 –0.01 0.00 0.03 –0.04 –0.13
Total 2.20 1.68 1.14 3.93