| Author: | Connor, G. Leland, H. |
| Title: | Cash management for index tracking |
| Journal: | Financial Analysts' Journal
1995 : NOV-DEC, VOL. 51:6, p. 75-80 |
| Index terms: | FINANCE CASH MANAGEMENT INDEXING |
| Language: | eng |
| Abstract: | Although all standard equity indexes have a zero weight in cash, managers running index-tracking portfolios often find that maintaining a positive cash holding is cost-efficient. This practice saves significantly on transaction costs because temporary cash inflows and outflows can be absorbed into the cash inventory. In this paper, a mean-variance framework is used to analyze the cash management problem for an index-tracking portfolio. The theoretical model is based on passive index tracking, but it has implications for any portfolio manager with an equity benchmark and random cash inflows and outflows. |
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