Abstract

http://ssrn.com/abstract=1151564
 
 

Citations



 


 



Portfolio Performance Manipulation and Manipulation-Proof Performance Measures


Jonathan E. Ingersoll Jr.


Yale School of Management - International Center for Finance

Matthew I. Spiegel


Yale University - Yale School of Management, International Center for Finance

William N. Goetzmann


Yale School of Management - International Center for Finance; National Bureau of Economic Research (NBER)

Ivo Welch


University of California, Los Angeles (UCLA); National Bureau of Economic Research (NBER)

2007

The Review of Financial Studies, Vol. 20, Issue 5, pp. 1503-1546, 2007

Abstract:     
Numerous measures have been proposed to gauge the performance of active management. Unfortunately, these measures can be gamed. Our article shows that gaming can have a substantial impact on popular measures even in the presence of high transactions costs. Our article shows there are conditions under which a manipulation-proof measure exists and fully characterizes it. This measure looks like the average of a power utility function, calculated over the return history. The case for using our alternative ranking metric is particularly compelling for hedge funds whose use of derivatives is unconstrained and whose managers' compensation itself induces a nonlinear payoff.

Keywords: G11, G23, G24

Accepted Paper Series


Not Available For Download

Date posted: June 26, 2008  

Suggested Citation

Ingersoll, Jonathan E. and Spiegel, Matthew I. and Goetzmann, William N. and Welch, Ivo, Portfolio Performance Manipulation and Manipulation-Proof Performance Measures (2007). The Review of Financial Studies, Vol. 20, Issue 5, pp. 1503-1546, 2007. Available at SSRN: http://ssrn.com/abstract=1151564 or http://dx.doi.org/10.1093/rfs/hhm025

Contact Information

Jonathan E. Ingersoll Jr. (Contact Author)
Yale School of Management - International Center for Finance ( email )
135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-5924 (Phone)
203-432-6974 (Fax)
Matthew I. Spiegel
Yale University - Yale School of Management, International Center for Finance ( email )
135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-6017 (Phone)
203-432-8931 (Fax)
HOME PAGE: http://som.yale.edu/~spiegel
William N. Goetzmann
Yale School of Management - International Center for Finance ( email )
135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-5950 (Phone)
203-432-8931 (Fax)
HOME PAGE: http://viking.som.yale.edu

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Ivo Welch
University of California, Los Angeles (UCLA) ( email )
405 Hilgard Avenue
Box 951361
Los Angeles, CA 90095
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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