Measuring Performance in a Dynamic World: Conditional Mean-Variance Fundamentals
30 Pages Posted: 6 Apr 2009 Last revised: 28 Apr 2009
Date Written: April 6, 2009
We develop conditional alpha performance measures that are consistent with conditional mean-variance analysis and the magnitude and sign of the implied true conditional time-varying alphas. The sequence of conditional alphas and betas is estimable from surprisingly simple unconditional regressions. Other common performance measures are derivable from the conditional investment opportunity set based on its conditional asset return moments. Our bootstrap analysis of Morningstar mutual fund returns data demonstrates that the differences between existing conditional alpha measures and our proposed alpha are substantive for typical parameterizations.
Keywords: Conditional performance measurement, Conditional mean-variance analysis, Conditional Jensen's alpha
JEL Classification: D82, G11, G12, G14, G23
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