FNCE30001 Lecture 6: Performance Evaluation
27 Jun 2018
School
Department
Course
Professor
Portfolio Performance Evaluation
murmurer
QUkK0VERVt
measurement calculating
the
return aportfolio
achieved
overa
period
of
time
Performanceappraisal evaluating
overall
portfolio
performance link vs
return
what
proportion
of
this
overall
performance
wasduetomanager
whitvs
luck
Performance
attribution what
proportion
ofsuperior
1
inferior
performancewasdue toasset
allocation
andsecurity
selection
DefiningTimeweightedReturnsN
Aiming hogarithmicrreturnsleontinuoustimetmmunnn
PnPoutrn Ip
npoem
rn to Irn bnE
Accumulatingdaveragingt tat rat rn
FItry nllitnutrd itrn nIN
ris total returnafternperiods
it is themean
return
for
period
geometricmeanin this can
Dollar
weightedreturnst
Needto identifytheamount dtimingofeverycashflowd
find
theequivalentto
internalrate
ofreturn HRM
egCeo t9tEFF ohalve
foriconvertto ratefato
getD
WR
DifferencesblwTWRdbwrJ
when intermediate cash
flawsare small thetwo willbe
very
close
Whenintermediatecash
flowsare lamp orwhenrubperiodreturnsareveryvolatile then
therecan belargedifferences
oflargeamounts are contributed justbefore a
periodof
strong
performance then D
WR TWR
Iflargeamounts arewithdrawn justbefore aperiod
of
strong
performance then D
WR Twr
Performancet
Thefundamentalinneriswhatwecompare
performance to
requiresus tomesome
kindof antpricingmodeltodecidewhatis normalexpected
return
needs tobe amagnificentdifference becausedifferencesbtw
actualaexpected
returnscan
beduetorandomoccurrences
What
causesabnormal
performance
Arnt selection weights howmuchin attacks tobonds
security
election individualmunities
Randominfluences luck am out overtimeon average
Markettiming showsupas As in or
thrinpleBenchmarkindexN
Selectbenchmarkindex 4whichisassumedtohave
thesame
riskasthe
portfolio
Benchmarkshould
beviable identifiablebefore
the
factdhavealawtransaction
cost
ofRp Ri the
portfoliohasmfremier
performance
Document Summary
I pn poem rn bne t rn at rat. F is totalreturnafternperiods r it is themeanreturnforperiod geometricmeanin this can. Needto identifytheamountd timingofeverycashflowdfindtheequivalenttointernalrate ofreturn hrm e g ceo t 9 t eff o halvefori convertto ratef a togetdwr. Whenintermediatecashflowsare lamp orwhenrubperiodreturnsareveryvolatile then therecan belargedifferences oflargeamounts are contributed justbefore aperiodofstrongperformance then dwr twr. Whatcausesabnormalperformance requiresus tomesomekindof antpricingmodeltodecidewhatis normalexpectedreturn needstobe a magnificentdifference becausedifferencesbtwactualaexpectedreturnscan be duetorandomoccurrences. Benchmarkshouldbeviable identifiablebeforethefactdhavea lawtransactioncost of rp ri theportfoliohasmfremierperformance am out overtimeon average luck or asharperatiolesopoti. 3 m measure denominatorcalledthetrackingerror i nonignificance tht howdoweknow idphavethesame risk nomodelcouldbebad mikfree ant toformp muchthat op on. Positives negatives cheaptoimplement t bang to understand doesn"trelyon aspecificmodel. Providesameasureofexcessreturnperunitofnondiversifiablemik y of t mkt riskpremium we havesuperiorperformance. Run thefollowingregressiontofindif a is significantlydifferentfromzero rpt of a is significantly the wehavesuperiorperformance. Followthesamelogicasjensen"salpha usinganymodelofrisk return suchascarhart rpt ret xp t mrt t be. Tripp fm ff rfe tlet s. jemenbalfhd_ rft xp t fp rn t botheration ltteynarratice.
