Portfolio Performance Measurement: Theory and Applications
Yale University - International Center for Finance; Zebra Capital Management, LLC
Peter J. Knez
affiliation not provided to SSRN
REVIEW OF FINANCIAL STUDIES Vol. 9 No. 2
Any admissible portfolio performance measure should satisfy four minimal conditions: it assigns zero performance to each reference portfolio and it is linear, continuous and nontribial. 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 not arbitrage. This paper characterizes the (infinite) set of admissible performance measures. It is shown that performance evaluation is generally quite arbitrary. A mutual fund data set is also used to demonstrate how the measurement method developed here can be applied.
JEL Classification: G11Accepted Paper Series
Date posted: May 20, 1998
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