portfolio performance evaluation投资组合性能评.docx

Portfolio Performance EvaluationChapter 18Abnormal PerformanceBig Question: What is “abnormal”?Abnormal performance is measured:Benchmark portfolioMarket adjustedMarket model / index model adjustedGenerally, we can gauge abnormal performance with broad measures that measure reward to risk in some way (e.g. the Sharpe Measure, Treynor Measure, and the Information Ratio). Which measure is most appropriate depends on the “scenario” that applies. Also, these measures presume that the distribution of returns are constant. There are also several performance measures that break down abnormal performance into factors such as market timing and security selection (e.g. performance attribution).How do you getabnormal performance?Market timingSuperior selectionSectors or industriesIndividual companiesBasic Approach to Determining PerformanceUse the index model from Chps 6-7:What would the expected risk premium (RP) be on your portfolio?is a constant, so this would stay as whatever you have measured its value as.is also a constant.You need to estimate an expected value for What about the expected value of?Therefore, becomes the measure of abnormal performance, i.e. what you receive above and beyond what the CAPM would suggest.What about portfolio risk? Recall that we can break up total risk into systematic and non-systematic parts:Total risk: How do you get expected returns, risk, and other inputs to determine how well your portfolio did vs some broadly diversified benchmark?You need the following:An average risk premium for your portfolio () and for the comparison portfolio () over some measurement period: This is your guesstimate for the portfolios’ expected returns.The standard deviation of the risk premium for your portfolio () and for the comparison portfolio () over some measurement period. This is your guesstimate of the portfolios’ expected risk.Regress your portfolio’s risk premium on the market’s risk premium over the measurement period – this will give you the