Portfolio Performance Evaluation

THE ENCYCLOPEDIA OF FINANCE, C.F. Lee, ed., Springer, pp. 617-622, 2005

15 Pages Posted: 20 Nov 2009

Date Written: 2005

Abstract

The portfolio performance evaluation involves the determination of how a managed portfolio has performed relative to some comparison benchmark. Performance evaluation methods generally fall into two categories, namely conventional and risk-adjusted methods. The most widely used conventional methods include benchmark comparison and style comparison. The risk-adjusted methods adjust returns in order to take account of differences in risk levels between the managed portfolio and the benchmark portfolio. The major such methods are the Sharpe ratio, Treynor ratio, Jensen’s alpha, Modigliani and Modigliani, and Treynor Squared. The risk-adjusted methods are preferred to the conventional methods.

Keywords: Performance, Evaluation, Standard deviation, Systematic risk, Conventional methods, Benchmark comparison, Style comparison, Risk-adjusted measures, Sharpe measure, Treynor measure, Jensen measure, Alpha, Modigliani-Modigliani measure, Treynor squared

JEL Classification: G10, G11

Suggested Citation

Samarakoon, Lalith P. and Hasan, Tanweer, Portfolio Performance Evaluation (2005). THE ENCYCLOPEDIA OF FINANCE, C.F. Lee, ed., Springer, pp. 617-622, 2005 , Available at SSRN: https://ssrn.com/abstract=1508764

Lalith P. Samarakoon (Contact Author)

University of St. Thomas ( email )

2115 Summit Ave
St. Paul, MN 55105
United States

HOME PAGE: http://www.lalithsamarakoon.com

Tanweer Hasan

Roosevelt University ( email )

Chicago, IL 60605
United States