Premium
Performance Evaluation with Information on Portfolio Compositions *
Author(s) -
Hwang SunWung,
Park Jinwoo
Publication year - 2011
Publication title -
asia‐pacific journal of financial studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.375
H-Index - 15
eISSN - 2041-6156
pISSN - 2041-9945
DOI - 10.1111/j.2041-6156.2011.01055.x
Subject(s) - portfolio , market timing , measure (data warehouse) , stock (firearms) , stock market , selection (genetic algorithm) , point (geometry) , econometrics , investment strategy , actuarial science , economics , business , computer science , microeconomics , financial economics , mathematics , artificial intelligence , profit (economics) , mechanical engineering , paleontology , horse , engineering , biology , geometry , database
It is very important to evaluate fund managers who are presumed to have access to superior information (either from inside knowledge or superior analysis) as compared to other investors. As Dybvig and Ross point out, however, the majority of performance measures thus far developed can yield distorted performance appraisals, as the portfolio mix of assets being evaluated is held constant. In this paper, we derive a measure of a manager’s stock selection performance, under the assumption that managers follow a sequential investment strategy based on the information they receive: first stock selection, and then market timing. We then determine the amount of possible bias associated with the Jensen measure in the presence of market timing. We also derive the correct measure of a manager’s market timing ability.