30 Pages Posted: 11 Aug 2001
Date Written: April 2001
Improvements in technology and increasing emphasis on performance have led many investors to monitor the performance of fund managers on a high frequency basis: quarterly, monthly, or more often. We examine the impact that frequency of performance measurement has on the probability distribution of observed outcomes. With more frequent monitoring of rolling returns, there is a greatly increased probability of observing seemingly extreme results. We show that if performance is appraised by focussing on returns to date, then it is important to adjust the definition of extreme performance for the frequency with which returns are monitored. Failure to do so may lead to costly actions such as strategy revisions or manager terminations, which increase transaction costs and have detrimental effects on manager incentives.
Keywords: Performance measurement; Investment management; High frequency monitoring
JEL Classification: G23, G10
Suggested Citation: Suggested Citation
Dimson, Elroy and Jackson, Andrew, High Frequency Performance Monitoring (April 2001). London Business School Accounting Subject Area No. 024. Available at SSRN: https://ssrn.com/abstract=274330 or http://dx.doi.org/10.2139/ssrn.274330
By Richard Sias