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: Suggested Citation
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