portfolio performance evaluation

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1、Chapter24:PortfolioPerformanceEvaluationChapterOpenerp.819PART  VIIHOWCANWE  evaluatetheperformanceofaportfoliomanager?Itturnsoutthatevenaverageportfolioreturnisnotasstraight-forwardtomeasureasitmightseem.Inaddition,adjustingaveragereturnsforriskpresentsahostofotherproblems.Webeginwiththemeasuremen

2、tofportfolioreturns.Fromtherewemoveontoconventionalapproachestoriskadjustment.Weidentifytheproblemswiththeseapproacheswhenappliedinvariousreal-lifesituations.Wethenturntosomepracticalproceduresforperformanceevaluationinthefieldsuchasstyleanalysis,theMorningstarStarRatings,andin-houseperformanceattr

3、ibution.24.1TheConventionalTheoryofPerformanceEvaluationAverageRatesofReturnWedefinedtheholding-periodreturn(HPR)inSection5.1ofChapter5andexplainedthedifferencesbetweenarithmeticandgeometricaverages.Supposeweevaluatetheperformanceofaportfoliooveraperiodof5yearsfrom20quarterlyratesofreturn.Thearithm

4、eticaverageofthissampleofreturnswouldbethebestestimateoftheexpectedrateofreturnoftheportfolioforthenextquarter.Incontrast,thegeometricaverageistheconstantquarterlyreturnoverthe20quartersthatwouldyieldthesametotalorcumulativereturn.Therefore,thegeometricaverageisdefinedbyTheright-handsideofthisequat

5、ionisthecompoundedfinalvalueofa$1investmentearningthe20quarterlyratesofreturnoverthe5-yearobservationperiod.Theleft-handsideisthecompoundedvalueofa$1investmentearningrG eachquarter.Wesolvefor1+rGasEachreturnhasanequalweightinthegeometricaverage.Forthisreason,thegeometricaverageisreferredtoasatime-w

6、eightedaverageAnaverageoftheperiod-by-periodholding-periodreturnsofaninvestment..p.820   Tosetthestagefordiscussingthemoresubtleissuesthatfollow,letusstartwithatrivialexample.Considerastockpayingadividendof$2annuallythatcurrentlysellsfor$50.Youpurchasethestocktoday,collectthe$2dividend,andthensellt

7、hestockfor$53atyear-end.Yourrateofreturnis   Anotherwaytoderivetherateofreturnthatisusefulinthemoredifficultmultiperiodcaseistosetuptheinvestmentasadiscountedcashflowproblem.Callrtherateofreturnthatequatest