Policy Effect Definition
The policy effect is the measure of the returns between the portfolio which sticks to a set guideline of investing vs. a neutral market position.
While policy effect statistic alone isn't extremely exciting, the issue of how long you can accurately measure and rely upon the policy effect is more important. For example, if you are an analyst trying to the "best" global macro hedge funds for your firm's portfolio you will probably be looking at hedge fund managers with long track records. If two of these managers both have great track records but one significantly shifted their investment policy/guidelines during the last three years than it is hard to measure the true policy effect over the length of full track record. This is not to say that many hedge fund managers investment policies don't or shouldn't change over time, but it can cause institutional consultants and fund of funds to consider watching from the sidelines for a few more quarters or years to see how an adjusted approach pans out.
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Permanent Link: Policy Effect
Definition Source: Russel
Tags: Policy Effect, Policy Effects, Policy Effect Definition, Investment Policy Effect, Investment Guideline Effect, Investment Guidelines Effect