tailieunhanh - Portfolio Performance Evaluation

In some cases the style of a fund is captured using the returns of other managed portfolios in the same market sector. The OE port- folio is then a combination of a manager’s peers’ portfolios. With this approach the measured performance is a zero-sum game, as the average performance measured in the peer group must be zero. This approach can make it easy to control for costs and risks, to the extent that the portfolio and its peers are similar in these dimensions. In such cases, the performance differential can be a relatively clean measure of value added. However, finding truly comparable peer funds may be a challenge. Many. | Foundations and Trends in Finance Vol. 2 No. 2 2006 83-190 1 2007 G. O. Argon and W. E. Ferson DOI 0500000015 new the essence of knowledge Portfolio Performance Evaluation George O. Aragon1 and Wayne E. Ferson2 1 . Carey School of Business Arizona State University PO Box 873906 Tempe AZ 480 965-5810 2 Marshall School of Business University of Southern California 701 Exposition Boulevard Los Angeles CA 90089-142 ferson@ http fersonwa Abstract This paper provides a review of the methods for measuring portfolio performance and the evidence on the performance of professionally managed investment portfolios. Traditional performance measures strongly influenced by the Capital Asset Pricing Model of Sharpe 1964 were developed prior to 1990. We discuss some of the properties and important problems associated with these measures. We then review the more recent Conditional Performance Evaluation techniques designed to allow for expected returns and risks that may vary over time and thus addressing one major shortcoming of the traditional measures. We also discuss weight-based performance measures and the stochastic discount factor approach. We review the evidence that these newer measures have produced on selectivity and market timing ability for professional managed investment funds. The evidence includes equity style mutual funds pension funds asset allocation style funds fixed income funds and hedge funds. Keywords Portfolio performance mutual fund performance hedge funds managed portfolios. 1 Introduction This is a good time for a review of the academic literature on evaluating portfolio performance concentrating on professionally managed investment portfolios. While the literature goes back to before the 1960s recent years have witnessed an explosion of new methods for performance evaluation and new evidence on the subject. We think that several forces have contributed to this renaissance. The demand for .