Random portfolios sound interesting, but what good are they?
First off, the idea of random portfolios is that they are a random sample of all of the portfolios that satisfy a given set of constraints. They have had many uses, and surely additional uses will be found in the future. The Working Paper “Performance Measurement via Random Portfolios” shows random portfolios to provide good measures of the skill of fund managers, and that they can form the basis of investment mandates. The Working Paper “Does My Beta Look Big in This?” is an example of using random portfolios to decide the limits that a constraint should be given. More on random portfolios can be found at Random Portfolios in Finance.
