Risk Measurement for Asset Managers: A Test of Relative VAR
Newfin Working Paper No. 6/02
23 Pages Posted: 22 May 2003
Date Written: November 2002
The over or underperformance against a benchmark is one of the main parameters for mutual fund managers' evaluation and compensation. Therefore, the ability to measure the potential underperformance that can derive from an adverse move of the market given current portfolio composition is crucial. This paper tests Relative Value at Risk (RVaR) as the possible measure that can provide this information to fund managers. The empirical test on RVaR accuracy for internationally diversified equity portfolios is encouraging, and sheds some light on the different problems that arise when backtesting Relative VaR instead of common VaR measures.
Keywords: risk, value at risk, asset management
JEL Classification: G10, G23
Suggested Citation: Suggested Citation