Benchmarking Money Manager Performance: Issues and Evidence

63 Pages Posted: 21 Aug 2006 Last revised: 21 Jul 2010

See all articles by Louis K.C. Chan

Louis K.C. Chan

University of Illinois at Urbana-Champaign - Department of Finance

Stephen G. Dimmock

Nanyang Technological University - Division of Finance

Josef Lakonishok

University of Illinois at Urbana-Champaign; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: August 2006

Abstract

Academic and practitioner research yields a proliferation of methods using size and value/growth attributes or factors to evaluate portfolio performance. We assess the relative merits of several of the most widely-used procedures, including variants of matched-characteristic benchmark portfolios and time-series return regressions, by applying them to a sample of active money managers and passive indexes. Estimated abnormal returns display large variation across approaches. The benchmarks most widely used in academic research --- attribute-matched portfolios from independent sorts, the conventional three-factor time series model, and cross-sectional regressions of returns on stock characteristics --- have poor ability to track returns. Simple alterations are provided that improve the performance of the methods.

Suggested Citation

Chan, Louis K.C. and Dimmock, Stephen G. and Lakonishok, Josef, Benchmarking Money Manager Performance: Issues and Evidence (August 2006). NBER Working Paper No. w12461. Available at SSRN: https://ssrn.com/abstract=924747

Louis K.C. Chan

University of Illinois at Urbana-Champaign - Department of Finance ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
217-333-6391 (Phone)
217-244-3102 (Fax)

Stephen G. Dimmock

Nanyang Technological University - Division of Finance ( email )

S3-B1B-76 Nanyang Avenue
Singapore, 639798
Singapore

Josef Lakonishok (Contact Author)

University of Illinois at Urbana-Champaign ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
217-333-7185 (Phone)
217-244-3102 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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