Benchmarking Money Manager Performance: Issues and Evidence

Posted: 8 Dec 2009

See all articles by Louis K.C. Chan

Louis K.C. Chan

University of Illinois at Urbana-Champaign - Department of Finance

Stephen G. Dimmock

Nanyang Technological University - Division of Finance

Josef Lakonishok

University of Illinois at Urbana-Champaign; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: November 2009

Abstract

Academic and practitioner research evaluates portfolio performance using size and value/growth attributes or factors. We assess the merits of popular evaluation procedures based on matched-characteristic benchmark portfolios or time-series return regressions by applying them to a sample of active money managers and passive indexes. Estimated abnormal returns display large variation across approaches. The benchmarks typically used in academic research-attribute-matched portfolios from independent sorts, the three-factor time-series model, and cross-sectional regressions of returns on stock characteristics-track returns poorly. Some simple alterations improve the performance of these methods.

JEL Classification: G11, G12, G14, G23

Suggested Citation

Chan, Louis K.C. and Dimmock, Stephen G. and Lakonishok, Josef, Benchmarking Money Manager Performance: Issues and Evidence (November 2009). The Review of Financial Studies, Vol. 22, Issue 11, pp. 4553-4599, 2009. Available at SSRN: https://ssrn.com/abstract=1519270 or http://dx.doi.org/hhp016

Louis K.C. Chan

University of Illinois at Urbana-Champaign - Department of Finance ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
217-333-6391 (Phone)
217-244-3102 (Fax)

Stephen G. Dimmock

Nanyang Technological University - Division of Finance ( email )

S3-B1B-76 Nanyang Avenue
Singapore, 639798
Singapore

Josef Lakonishok

University of Illinois at Urbana-Champaign ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
217-333-7185 (Phone)
217-244-3102 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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