Tag Archives: investment performance measurement
Discovering the quality of portfolio decisions
Performance analysis of an example portfolio. The portfolio We explore a particular portfolio during 2007. It invests in S&P 500 stocks and starts the year with a value of $10 million. Initially there are 50 names in the portfolio. It also ends the year with 50 names but has up to 53 names during the … Continue reading
Performance measurement is about decisions
The return of a hypothetical fund was 17.9% in 2010. We want to know if that is good or bad. The benchmark method The assets in the portfolio are constituents of the S&P 500, so we can compare our fund return to the return of the index. Figure 1: 2010 returns of: the fund and … Continue reading
Posted in Performance, R language, Random portfolios
Tagged investment performance measurement, luck versus skill
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Finding good active managers
Investors need to distinguish between good and bad active fund managers. Relatively new technology makes this much easier. The usual methods benchmark One of the common approaches is to compare funds versus a benchmark. Often much effort goes into choosing just the right index to be the benchmark. Should we use MSCI or something else? … Continue reading
A tangle of luck and skill
Some concrete steps for discerning skill from luck. The Harvard Business Review published a guest blog post by Michael Mauboussin called Untangling Skill and Luck. That post is really a brief introduction to a longer piece which is also called Untangling Skill and Luck. The punchline is that there are ways of estimating the proportion … Continue reading
Dicing with the market
How to visualize luck when looking for skill. Quantitative Finance just published the paper Dicing with the market: randomized procedures for evaluation of mutual funds by Francesco Lisi. Here is the working paper version. This paper explains one way of using random portfolios to do performance measurement of investment funds. It includes performance measures on … Continue reading
Posted in Performance, Random portfolios
Tagged investment performance measurement, luck versus skill
1 Comment
A performance step beyond “Economists’ Hubris”
The paper “Economists’ Hubris — The case of equity asset management” (SSRN) by Shojai, Feiger and Kumar has achieved some measure of notoriety. It has mentions in the MoneyScience blog and in the Financial Times among other places. A response to the article by Paul Kaplan of Morningstar is at Investment Week. If I may … Continue reading
