Portfolio Performance Evaluation

108 Pages Posted: 14 Jun 2010

See all articles by George O. Aragon

George O. Aragon

Arizona State University (ASU) - Finance Department

Wayne E. Ferson

University of Southern California; National Bureau of Economic Research (NBER)

Date Written: June 14, 2010

Abstract

This paper provides a review of the methods for measuring portfolio performance and the evidence on the performance of professionally managed investment portfolios. Traditional performance measures, strongly influenced by the Capital Asset Pricing Model of Sharpe (1964), were developed prior to 1990. We discuss some of the properties and important problems associated with these measures. We then review the more recent Conditional Performance Evaluation techniques, designed to allow for expected returns and risks that may vary over time, and thus addressing one major shortcoming of the traditional measures. We also discuss weight-based performance measures and the stochastic discount factor approach. We review the evidence that these newer measures have produced on selectivity and market timing ability for professional managed investment funds. The evidence includes equity style mutual funds, pension funds, asset allocation style funds, fixed income funds and hedge funds.

Keywords: Portfolio performance, mutual fund performance, hedge funds, managed portfolios

Suggested Citation

Aragon, George O. and Ferson, Wayne E., Portfolio Performance Evaluation (June 14, 2010). Foundations and Trends in Finance, Vol. 2, No. 2, pp. 83-190, 2006, Available at SSRN: https://ssrn.com/abstract=1624985

George O. Aragon (Contact Author)

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

Wayne E. Ferson

University of Southern California ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

HOME PAGE: http://www-rcf.usc.edu/~ferson/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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