A More Informative Measure of Active Fund Performance

23 Pages Posted: 6 Mar 2011

See all articles by David Nanigian

David Nanigian

San Diego State University - Fowler College of Business - Finance Department

Date Written: March 2, 2011

Abstract

This paper presents a new measure of active fund performance that evaluates funds in a manner which is aligned with what investors seek to optimize: utility. Unlike the information ratio, which is currently one of the most popular metrics of performance used by practitioners, my measure assumes a concave utility function and incorporates one’s aversion to risk. I convey the importance of these improvements through comparative static analysis. Finally, using a sample of mutual funds I also find that the information ratio is only weakly robust to my measure.

Keywords: Information Ratio, Utility Theory

JEL Classification: G19, G29

Suggested Citation

Nanigian, David, A More Informative Measure of Active Fund Performance (March 2, 2011). Available at SSRN: https://ssrn.com/abstract=1775396 or http://dx.doi.org/10.2139/ssrn.1775396

David Nanigian (Contact Author)

San Diego State University - Fowler College of Business - Finance Department ( email )

5500 Campanile Drive
San Diego, CA 92182-8236
United States
213-545-1036 (Phone)

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