Crossing a Rubicon into Active Money Management Realities: Performance Measurement When Funds Follow Opaque Strategies

78 Pages Posted: 3 Nov 2017 Last revised: 22 Feb 2018

See all articles by Gurdip Bakshi

Gurdip Bakshi

Fox School of Business

John Crosby

University of Maryland - Robert H. Smith School of Business

Xiaohui Gao Bakshi

University of Maryland - Department of Finance

Date Written: February 9, 2018

Abstract

We develop a performance measure, termed MAP, which is based on the concept of ambiguity aversion, and is pertinent for actively managed funds that follow opaque investment strategies. When investors are ambiguity averse, our empirical evidence refutes the notion that many actively managed equity strategies outperform the (passive) market. We further contextualize the approach using strategies based on selling tail events in the equity, Treasury, volatility, and currency markets and find that these strategies underperform the market even when they have attractive Sharpe ratios. Our investigation addresses other questions including, the efficacy of hedge fund investments and carry trades.

Suggested Citation

Bakshi, Gurdip S. and Crosby, John and Gao, Xiaohui, Crossing a Rubicon into Active Money Management Realities: Performance Measurement When Funds Follow Opaque Strategies (February 9, 2018). Available at SSRN: https://ssrn.com/abstract=3064468 or http://dx.doi.org/10.2139/ssrn.3064468

Gurdip S. Bakshi

Fox School of Business ( email )

Department of Finance
Philadelphia, PA 19022
United States
215-204-6117 (Phone)
tuk40718@temple.edu (Fax)

HOME PAGE: http://https://sites.google.com/view/gurdipbakshi1

John Crosby

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

College Park, MD 20742-1815
United States
+447979901892 (Phone)

HOME PAGE: http://www.john-crosby.co.uk/

Xiaohui Gao (Contact Author)

University of Maryland - Department of Finance ( email )

Robert H. Smith School of Business
Van Munching Hall
College Park, MD 20742
United States

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