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

National University of Singapore; Asian Bureau of Finance and Economic Research (ABFER)

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 )

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Stephen G. Dimmock

National University of Singapore ( email )

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Asian Bureau of Finance and Economic Research (ABFER) ( email )

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Josef Lakonishok

University of Illinois at Urbana-Champaign ( email )

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

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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