Abstract

http://ssrn.com/abstract=1597685
 
 

References (37)



 
 

Citations (4)



 


 



Economists’ Hubris – The Case of Equity Asset Management


Shahin Shojai


Ernst & Young LLP

George Feiger


Contango Capital Advisors

Rajesh Kumar


Institute of Management Technology , Dubai

April 29, 2010

Journal of Financial Transformation, Vol. 29, pp. 9-16

Abstract:     
In this, the fourth article in the economists’ hubris paper series we look at the contributions of academic thought to the field of asset management. We find that while the theoretical aspects of the modern portfolio theory are valuable they offer little insight into how the asset management industry actually operates, how its executives are compensated, and how their performances are measured. We find that very few, if any, portfolio managers look for the efficiency frontier in their asset allocation processes, mainly because it is almost impossible to locate in reality, and base their decisions on a combination of gut feelings and analyst recommendations. We also find that the performance evaluation methodologies used are simply unable to provide investors with the necessary tools to compare portfolio managers’ performances in any meaningful way. We suggest a novel way of evaluating manager performance which compares a manager against himself, as suggested by Lord Myners. Using the concept of inertia, an asset manager’s end of period performance is compared to the performance of their portfolio assuming their initial portfolio had been held, without transactions, during this period. We believe that this will provide clients with a more reliable performance comparison tool and might prevent unnecessary trading of portfolios. Finally, given that the performance evaluation models simply fail in practice, we suggest that accusing investors who look for raw returns when deciding who to invest their assets with is simply unfair.

Number of Pages in PDF File: 10

Keywords: Asset management, Fund management, Modern Portfolio Theory, Performance evaluation models, Efficient Market Hypothesis

JEL Classification: G11, G14, G23

Accepted Paper Series





Download This Paper

Date posted: May 2, 2010 ; Last revised: January 7, 2011

Suggested Citation

Shojai, Shahin and Feiger, George and Kumar, Rajesh, Economists’ Hubris – The Case of Equity Asset Management (April 29, 2010). Journal of Financial Transformation, Vol. 29, pp. 9-16. Available at SSRN: http://ssrn.com/abstract=1597685

Contact Information

Shahin Shojai (Contact Author)
Ernst & Young LLP ( email )
One More London Place
London, London SE1 2AF
United Kingdom
George Feiger
Contango Capital Advisors ( email )
111 Sutter Street, Suite 975
San Francisco, CA 94104
United States
415-677-6700 (Phone)
Rajesh Kumar
Institute of Management Technology , Dubai ( email )
Dubai International Academic City
Dubai
Dubai, 345006
United Arab Emirates
Feedback to SSRN


Paper statistics
Abstract Views: 9,430
Downloads: 7,134
Download Rank: 388
References:  37
Citations:  4
Paper comments
No comments have been made on this paper

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo6 in 0.343 seconds