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Performance Evaluation of Active Managers: An Overview of Current Practice

Investments & Wealth Monitor, January/February 2011

8 Pages Posted: 27 Oct 2010 Last revised: 22 Nov 2011

Jason C. Hsu

Rayliant Global Advisors; Research Affiliates, LLC; University of California, Los Angeles - Anderson School of Business

Vitali Kalesnik

Research Affiliates LLC

Russ Wermers

University of Maryland - Robert H. Smith School of Business

Date Written: October 21, 2010

Abstract

Historically, manager skill has been measured simply as the difference in average returns between the portfolio and the benchmark index. Managers were considered skillful if their active weights against the benchmark led to outperformance. However, a manager tilting toward a certain risk-factor, relative to his benchmark, could appear to be skilled at stock picking or market timing. In response; with the advent of more advanced attribution technologies, the definition of manager alpha has become far more sophisticated and precise.

Keywords: Performance, Evaluation

JEL Classification: G10, G20

Suggested Citation

Hsu, Jason C. and Kalesnik, Vitali and Wermers, Russ, Performance Evaluation of Active Managers: An Overview of Current Practice (October 21, 2010). Investments & Wealth Monitor, January/February 2011. Available at SSRN: https://ssrn.com/abstract=1698164

Jason C. Hsu (Contact Author)

Rayliant Global Advisors ( email )

Hong Kong

Research Affiliates, LLC ( email )

620 Newport Center Dr
Suite 900
Newport Beach, CA 92660
United States

HOME PAGE: http://www.jasonhsu.org

University of California, Los Angeles - Anderson School of Business

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Vitali Kalesnik

Research Affiliates LLC ( email )

620 Newport Center Dr
Ste 900
Newport Beach, CA 92660
United States
949-325-8717 (Phone)
949-325-8917 (Fax)

HOME PAGE: http://researchaffiliates.com/index.htm

Russell R. Wermers

University of Maryland - Robert H. Smith School of Business ( email )

Department of Finance
College Park, MD 20742-1815
United States
301-405-0572 (Phone)
301-405-0359 (Fax)

HOME PAGE: http://www.rhsmith.umd.edu/finance/rwermers/

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