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Portfolio Performance Measure and a New Generalized Utility-Based N-Moment Measure

34 Pages Posted: 11 Nov 2013  

Monica Billio

Ca Foscari University of Venice - Dipartimento di Economia

Gregory Mathieu Jannin

University Paris-1 Panthéon-Sorbonne; ABN AMRO ADVISORS - QCG

Bertrand B. Maillet

EMLyon Business School (Paris Campus)

Loriana Pelizzon

Goethe University Frankfurt - Faculty of Economics and Business Administration; Goethe University Frankfurt - Research Center SAFE; Ca Foscari University of Venice

Date Written: September 1, 2013

Abstract

Most of the performance measures proposed in the financial and academic literature are subject to be gamed in an active management framework (Goetzmann et al., 2007). One of the main reasons of this drawback is due to an incomplete characterization by these measures of studied return distributions. We introduce a new flexible Generalized Utility-based N-moment measure of performance (GUN, in short), characterizing the whole return distribution, and thus hardly gamable. More precisely, it takes into account the first four moments of the return distribution and the associated sensitivities of the studied agent, reflecting his preferences and risk profile. The new performance measure is also well adapted for analyzing performance of hedge funds and more peculiarly in presence of derivative instruments associated with non-Gaussian return distributions.

Keywords: Utility Function, Performance Measures, Agents’ Preferences, Portfolio Ranking

JEL Classification: C16, G11, G23, G24

Suggested Citation

Billio, Monica and Jannin, Gregory Mathieu and Maillet, Bertrand B. and Pelizzon, Loriana, Portfolio Performance Measure and a New Generalized Utility-Based N-Moment Measure (September 1, 2013). University Ca' Foscari of Venice, Dept. of Economics Research Paper Series No. 22. Available at SSRN: https://ssrn.com/abstract=2352928

Monica Billio (Contact Author)

Ca Foscari University of Venice - Dipartimento di Economia ( email )

Cannaregio 873
Venice, 30121
Italy

HOME PAGE: http://www.unive.it/persone/billio

Gregory Jannin

University Paris-1 Panthéon-Sorbonne ( email )

Department of Management Sciences (PRISM-Sorbonne)
17 rue de la Sorbonne
Paris, 75005
France

HOME PAGE: http://www.univ-paris1.gregoryjannin.com

ABN AMRO ADVISORS - QCG ( email )

3 avenue hoche
Paris, 75008
France

HOME PAGE: http://www.abnamro.com

Bertrand Maillet

EMLyon Business School (Paris Campus) ( email )

23 Avenue Guy de Collongue
Ecully, 69132
France

Loriana Pelizzon

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, D-60323
Germany

Goethe University Frankfurt - Research Center SAFE ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

HOME PAGE: http://www.safe-frankfurt.de

Ca Foscari University of Venice ( email )

Dorsoduro 3246
Venice, Veneto 30123
Italy

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