FINE 2000 Study Guide - Quiz Guide: Universal Life Insurance, Human Capital, Disability Insurance
Document Summary
The appropriate performance measure depends on the role of the portfolio to be evaluated. Appropriate performance measures are as follows: a. sharpe: when the portfolio represents the entire investment fund. b. Information ratio: when the portfolio represents the active portfolio to be optimally mixed with the passive portfolio. c. treynor or jensen: when the portfolio represents one subportfolio of many. Many observations are required to eliminate the effect of the (cid:498)luck of the draw(cid:499) (cid:498)noisy. (cid:499) Hedge funds or other active positions meant to be mixed with a passive indexed from the evaluation process because portfolio returns commonly are very portfolio should be evaluated based on their information ratio. The shifting mean and variance of actively managed portfolios make it even harder to assess performance. A typical example is the attempt of portfolio managers to time the market, resulting in ever-changing portfolio betas.
