Performance measures such as the Sharpe ratio and the information ratio are estimation subject to estimation error. Lo (2002) derives the explicit expressions for the statistical distribution of the Sharpe ratio. Bertrand and Protopopescu (2007) have extended his work to the bivariate case which...

In this primer, we review the classical methods for assessing the performance of a financial portfolio. The analysis relies on benchmarking the return on the portfolio with that of a peer group. We define and discuss the pros and cons of four performance metrics that are theoretically consistent...

This paper reviews the main dimensions underlying the selection of a classical portfolio performance measure, namely the Sharpe Ratio, Jensen's alpha, the Modified Jensen's alpha, the Treynor Ratio, and the Information Ratio. We first examine how they differ from each other according to the risk...

In this note we make use of theAverage Internal Rate of Return (AIRR) approach, first introduced in Magni (2010), to introduce a pair of metrics, opposed to IRR and TWRR, which measure the manager's performance and the investor's performance on the basis of the market values of the fund. We also...

A new model misspecification measure for linear asset pricing models is proposed. The origins of this measure are in Shanken (1987) and Kandel and Stambaugh (1985, 1995), where it is argued that the true market return is inherently latent and, as a consequence, only ever partially observed....

The mutual fund industry has experienced huge growth internationally, becoming one of the primary vehicles through which individuals and most institutions invest in capital markets. Thus, the evaluation of the performance of mutual funds has become a very interesting research topic both for...

We use S&P 500 index return data for the time period 1985-2012 to evaluate the performance of portfolio insurance strategies. We shed light on the question if the performance of a constant proportion portfolio insurance (CPPI) strategy can be improved by means of a time-varying multiplier which...

I find that the risk correction in the Daniel et al. (1997) (DGTW) benchmarks is less than perfect. In light of the small 79bps selection skill DGTW find, a more precise risk measure is required. I use the utility based performance measure suggested by Goetzmann et al. (2007) (MPPM) and compare...

Most of the performance measures proposed in the financial and academic literature are subject to be gamed in an active management framework (Goetzmann et al., 2007). One of the main reasons of this drawback is due to an incomplete characterization by these measures of studied return...

The portfolio performance evaluation involves the determination of how a managed portfolio has performed relative to some comparison benchmark. Performance evaluation methods generally fall into two categories, namely conventional and risk-adjusted methods. The most widely used conventional...