On the Choice of Asset Price Indices: Performance Measurement Versus Asset Class Analysis

25 Pages Posted: 3 Dec 2003

See all articles by Liang Peng

Liang Peng

Smeal College of Business, The Pennsylvania State University

Date Written: November 2003

Abstract

Asset price indices are widely used in financial economics to measure portfolio performance and analyze asset class attributes such as risk and returns. This paper uses statistical models and numerical examples to illustrate that these two research needs are different and thus demand different indices. The choice of indices has significant economic consequences since indices can differ dramatically under reasonable market conditions, as demonstrated by simulations. This paper proposes a moment-matching criterion to select indices for portfolio performance measurement, and a process-matching criterion to select indices for asset class attributes analysis.

Keywords: Asset price index, choice of indices, performance measurement, asset class attributes analysis

JEL Classification: C43, C52, G10

Suggested Citation

Peng, Liang, On the Choice of Asset Price Indices: Performance Measurement Versus Asset Class Analysis (November 2003). Available at SSRN: https://ssrn.com/abstract=468722 or http://dx.doi.org/10.2139/ssrn.468722

Liang Peng (Contact Author)

Smeal College of Business, The Pennsylvania State University ( email )

University Park
State College, PA 16802
United States

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