The Impact of Investment Constraints on Portfolio Performance Measurement: The Power Utility Function Case.
This paper examines the effect of investment constraints on performance measurement of institutionally managed funds. Assuming that these funds have a power utility function and using an optimal portfolio choice model, one can show that the Security Market Line remains a valid benchmark for these constrained funds under the perfect market assumption. Relaxing the perfect market assumption, one can prove that a non-stationary constrained investment policy will bias traditional measures of timing ability differently across managers types. Finally, the magnitude of this bias is illustrated with a numerical example. Copyright 1995 by MIT Press.
Year of publication: |
1995
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Authors: | Gibson, Rajna ; Tuchschmid, Nils S |
Published in: |
The Financial Review. - Eastern Finance Association - EFA. - Vol. 30.1995, 2, p. 243-73
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Publisher: |
Eastern Finance Association - EFA |
Saved in:
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