Portfolio Performance Measurement: Theory and Applications

Chen, Zhiwu; Knez, Peter J.

doi:10.1093/rfs/9.2.511

Cited by 291 publications

(289 citation statements)

References 55 publications

(82 reference statements)

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“…Thus the only source of correlation between different asset returns is the factors identified. Differently stated by Chen and Knez (1996), should the return achieved by a manager be the linear relationship of the identified factors (thus e i =0), it indicates that the manager thus possesses no skill.…”

Section: Return-based Style Analysis (Rbsa): Sharpe's Original Modelmentioning

confidence: 99%

Return-based style analysis of domestic targeted absolute and real return unit trust funds in South Africa

Louw¹,

Beer²

2012

COC

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By means of return-based style analysis (RBSA), heterogeneous style sub-categories were identified within the targeted absolute and real return (TARR) category of the South African unit trust market to create a framework for sub-categorisation. The study dealt with TARR funds and their place within the investment universe. The literature review emphasised the importance of asset allocation, which supports the use of RBSA to identify asset allocation and further provided a motivation for the semi-strong form of RBSA applied to the sample data. The findings suggest that in general, return-based style analysis applied to each fund identifies the asset allocation for the fund and is valid and that the collective results of return-based style analysis applied to the funds can be used to create a framework for sub-categorisation

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Section: Return-based Style Analysis (Rbsa): Sharpe's Original Modelmentioning

confidence: 99%

Return-based style analysis of domestic targeted absolute and real return unit trust funds in South Africa

Louw¹,

Beer²

2012

COC

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“…Following Chen and Knez (1996), who first introduced performance evaluation using SDF models, a fund's conditional SDF-alpha, , , is defined by 14…”

Section: A2 Performance Evaluation With Sdf Modelsmentioning

confidence: 99%

“…First, the sign of alphas has in general an ambiguous relationship to the marginal expected utility from adding or eliminating the assets from a portfolio. 3 1 Stochastic discount factor models have been used in performance measurement by Chen and Knez (1996), Dahlquist and Söderlind (1999), . 2 In order to avoid confusion, excess performance based on beta models is called "alpha" in this paper, while excess performance based on SDF-models is called "SDF-alpha" or SDF pricing error.…”

Section: Introductionmentioning

confidence: 99%

Why not use SDF rather than beta models in performance measurement?

Gusset

Zimmermann

2014

Financ Mark Portf Manag

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This paper analyzes performance measurement based on stochastic discount factors, compared to beta models traditionally used in computing funds' (Jensen) alphas. From a theoretical point of view, standard alphas suffer from several limitations. Our paper addresses this issue from an empirical point of view using a sample of Swiss mutual funds from 2000 to 2011. Our results suggest that the key for a "fair" comparison between SDF and beta models is the specification of the set of primitive assets used to calibrate the SDF function. Once this is established, the size of (absolute) performance differences considerably decreases between the two model families. However, there are sizeable performance deviations in the cross-section of funds if conditioning information is incorporated in the tests, up to some 20 basis points per month, or about 2.3% per year. In almost all cases, the SDF-alphas are lower than the standard (Jensen) alphas. In absolute terms, the average SDF-based underperformance of the funds is way larger than the average expense ratio of the funds, both in a conditional and unconditional setting.

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“…For a given M t we may define a fund's conditional SDF alpha following Chen and Knez (1996) and Jagannathan and Wang (2002) as…”

Section: Measuring Performancementioning

confidence: 99%

“…Furthermore, unconditional measures are bias when managers react to market indicators or consider dynamic investment strategies. Chen and Knez (1996) and Ferson and Schadt (1996) advocate conditional performance evaluation using time varying expected returns and betas in spite of the traditional unconditional moments [1].…”

Section: Introductionmentioning

confidence: 99%

Performance evaluation considering the coskewness

Moreno

Rodríguez²

2006

Managerial Finance

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Purpose The paper aims to examine the performance of Spanish mutual funds between 1999 and 2003. Design/methodology/approachThe methodolgy uses the stochastic discount factor (SDF) framework across a variety of models developed in the recent asset pricing literature. This approach is a fairly recent innovation in the evaluation of investment performance. Findings The present work complements the research of Farnworth et al. and Fletcher and Forbes, adding a new issue to the SDF, the third co moment of asset returns. Recent asset pricing studies show the relevance of the component of an asset's skewness related to the market portfolio's skewness, the coskewness, and how it helps to explain the time variation of ex ante market risk premiums. It is found that the effects of adding coskewness to evaluate the performance is significant even when factors based on size, book to market and momentum are included. Practical implications The omission of a coskewness factor may lead to erroneous evaluations of a fund's performance, and therefore, issues such as the persistence of performance should be revised. Originality/value This paper explores, for the first time, the effects of incorporating a coskewness factor in the analysis of investment performance, both in an unconditional and a conditional framework using SDF models.

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Portfolio Performance Measurement: Theory and Applications

Cited by 291 publications

References 55 publications

Return-based style analysis of domestic targeted absolute and real return unit trust funds in South Africa

Return-based style analysis of domestic targeted absolute and real return unit trust funds in South Africa

Why not use SDF rather than beta models in performance measurement?

Performance evaluation considering the coskewness

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