Portfolio Performance and Agency

Portfolio Performance Evaluation

This paper provides a review of the methods for measuring portfolio performance and the evidence on the performance of professionally managed investment portfolios. Traditional performance measures, strongly influenced by the Capital Asset Pricing Model of Sharpe (1964), were developed prior to 1990. We discuss some of the properties and important problems associated with these measures. We the...

Investment Portfolio Performance Evaluation

Most people who contract with financial managers do not have much understanding of how much benefit paid support provides them in terms of investment return. Similarly, most people who manage their own portfolios do not know how well they are doing with respect to the rest of the financial market – they simply define a successful portfolio by a positive return on investment. The goal of this pr...

Total Portfolio Performance Attribution Methodology

Portfolio Performance Measurement: Theory and Applications

Any admissible portfolio performance measure should satisfy four minimal conditions: it assigns zero performance to each reference portfolio and it is linear, continuous, and nontrivial. Such an admissible measure exists if and only if the securities market obeys the law of one price. A positive admissible measure exists if and only if there is no arbitrage. This article characterizes the (infi...

Information Acquisition, Overconfidence and Portfolio Performance∗

Rational investors perceive correctly the value of financial information. Investment in information is therefore rewarded with a higher Sharpe ratio. Overconfident investors overstate the quality of their own information, and thus attain a lower Sharpe ratio. We contrast the implications of the two models using a survey of customers of an Italian leading bank with portfolio data and measures of...