EvaluationofPortfolioPerformance投资分析与投

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InvestmentAnalysisand

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FrankK.Reilly&KeithC.BrownChapter26Chapter26-EvaluationofPortfolioPerformanceQuestionstobeanswered:Whatmajorrequirementsdoclientsexpectfromtheirportfoliomanagers?Whatcanaportfoliomanagerdotoattainsuperiorperformance?Whatisthepeergroupcomparisonmethodofevaluatinganinvestor’sperformance?Chapter26-EvaluationofPortfolioPerformanceWhatistheTreynorportfolioperformancemeasure?WhatistheSharpeportfolioperformancemeasure?WhatisthecriticaldifferencebetweentheTreynorandSharpeportfolioperformancemeasures?Chapter26-EvaluationofPortfolioPerformanceWhatistheJensenportfolioperformancemeasure,andhowdoesitrelatetotheTreynormeasure?Whatistheinformationratioandhowisitrelatedtotheotherperformancemeasures?Whenevaluatingasampleofportfolios,howdoyoudeterminehowwelldiversifiedtheyare?Chapter26-EvaluationofPortfolioPerformanceWhatisthebiasfoundregardingthecompositeperformancemeasures?WhatistheFamaportfolioperformancemeasureandwhatinformationdoesitprovidebeyondothermeasures?Whatisattributionanalysisandhowcanitbeusedtodistinguishbetweenaportfoliomanager’smarkettimingandsecurityselectionskills?Chapter26-EvaluationofPortfolioPerformanceWhatistheRoll“benchmarkerror”problem,andwhatarethetwofactorsthatareaffectedwhencomputingportfolioperformancemeasures?Whatistheimpactofglobalinvestingonthebenchmarkerrorproblem?Whatarecustomizedbenchmarks?Whataretheimportantcharacteristicsthatanybenchmarkshouldpossess?Chapter26-EvaluationofPortfolioPerformanceHowdobondportfolioperformancemeasuresdifferfromequityportfolioperformancemeasures?IntheWagnerandTitobondportfolioperformancemeasure,whatisthemeasureofriskused?WhatarethecomponentsoftheDietz,Fogler,andHardybondportfolioperformancemeasure?Chapter26-EvaluationofPortfolioPerformanceWhatarethesourcesofreturnintheFong,Pearson,andVasicekbondportfolioperformancemeasure?Whatarethetime-weightedanddollar-weightedreturnsandwhichshouldbereportedunderAIMR’sPerformancePresentationStandards?WhatisRequiredof

aPortfolioManager?1.Theabilitytoderiveabove-averagereturnsforagivenriskclass Superiorrisk-adjustedreturnscanbederivedfromeithersuperiortimingorsuperiorsecurityselection2.Theabilitytodiversifytheportfoliocompletelytoeliminateunsystematicrisk.relativetotheportfolio’sbenchmarkCompositePortfolio

PerformanceMeasuresPortfolioevaluationbefore1960rateofreturnwithinriskclassesPeergroupcomparisonsnoexplicitadjustmentforriskdifficulttoformcomparablepeergroupTreynorportfolioperformancemeasuremarketriskindividualsecurityriskintroducedcharacteristiclineTreynorPortfolio

PerformanceMeasureTreynorrecognizedtwocomponentsofriskRiskfromgeneralmarketfluctuationsRiskfromuniquefluctuationsinthesecuritiesintheportfolioHismeasureofrisk-adjustedperformancefocusesontheportfolio’sundiversifiablerisk:marketorsystematicriskTreynorPortfolio

PerformanceMeasureThenumeratoristheriskpremiumThedenominatorisameasureofriskTheexpressionistheriskpremiumreturnperunitofriskRiskaverseinvestorsprefertomaximizethisvalueThisassumesacompletelydiversifiedportfolioleavingsystematicriskastherelevantriskTreynorPortfolio

PerformanceMeasureComparingaportfolio’sTvaluetoasimilarmeasureforthemarketportfolioindicateswhethertheportfoliowouldplotabovetheSMLCalculatetheTvaluefortheaggregatemarketasfollows:TreynorPortfolio

PerformanceMeasureComparisontoseewhetheractualreturnofportfolioGwasaboveorbelowexpectationscanbemadeusing:SharpePortfolio

PerformanceMeasureRiskpremiumearnedperunitofriskTreynorversusSharpeMeasureSharpeusesstandarddeviationofreturnsasthemeasureofriskTreynormeasureusesbeta(systematicrisk)SharpethereforeevaluatestheportfoliomanageronthebasisofbothrateofreturnperformanceanddiversificationThemethodsagreeonrankingsofcompletelydiversifiedportfoliosProducerelativenotabsoluterankingsofperformanceJensenPortfolio

PerformanceMeasureAlsobasedonCAPMExpectedreturnonanysecurityorportfolioisJensenPortfolio

PerformanceMeasureAlsobasedonCAPMExpectedreturnonanysecurityorportfolioisWhere:E(Rj)=theexpectedreturnonsecurityRFR=theone-periodrisk-freeinterestrate

j=thesystematicriskforsecurityorportfoliojE(Rm)=theexpectedreturnonthemarketportfolioofriskyassetsTheInformationRatioPerformanceMeasureAppraisalratiomeasuresaveragereturninexcessofbenchmarkportfoliodividedbythestandarddeviationofthisexcessreturnApplicationofPortfolioPerformanceMeasuresPotentialBiasofOne-ParameterMeasurespositiverelationshipbetweenthecompositeperformancemeasuresandtheriskinvolvedalphacanbebiaseddownwardforthoseportfoliosdesignedtolimitdownsideriskComponentsofInvestmentPerformanceFamasuggestedoverallperformance,whichisitsreturninexcessoftherisk-freeratePortfolioRisk+SelectivityFurther,ifthereisadifferencebetweentherisklevelspecifiedbytheinvestorandtheactualriskleveladoptedbytheportfoliomanager,thiscanbefurtherrefinedInvestor’sRisk+Manager’sRisk+SelectivityComponentsofInvestmentPerformanceTheselectivitymeasureisusedtoassessthemanager’sinvestmentprowessTherelationshipbetweenexpectedreturnandriskfortheportfoliois:ComponentsofInvestmentPerformanceThemarketlinethenbecomesabenchmarkforthemanager’sperformanceComponentsofInvestmentPerformanceTheselectivitycomponentcanbebrokenintotwopartsgrossselectivityismadeupofnetselectivityplusdiversificationComponentsofInvestmentPerformanceAssumingtheinvestorhasatargetlevelofriskfortheportfolioequaltobT,theportionofoverallperformanceduetoriskcanbeassessedasfollows:RelationshipAmongPerformanceMeasuresTreynorSharpeJensenInformationRatioFamanetselectivitymeasuresHighlycorrelated,butnotperfectlysoPerformanceAttributionAnalysisAllocationeffectSelectioneffectMeasuringMarketTimingSkillsTacticalassetallocation(TAA)AttributionanalysisisinappropriateindexesmakeselectioneffectnotrelevantmultiplechangestoassetclassweightingsduringaninvestmentperiodRegression-basedmeasurementMeasuringMarketTimingSkillsFactorsThatAffectUseofPerformanceMeasuresMarketportfoliodifficulttoapproximateBenchmarkerrorcaneffectslopeofSMLcaneffectcalculationofBetagreaterconcernwithglobalinvestingproblemisoneofmeasurementSharpemeasurenotasdependentonmarketportfolioBenchmarkPortfoliosPerformanceevaluationstandardUsuallyapassiveindexorportfolioMayneedbenchmarkforentireportfolioandseparatebenchmarksforsegmentstoevaluateindividualmanagersCharacteristicsofBenchmarksUnambiguousInvestableMeasurableAppropriateReflectiveofcurrentinvestmentopinionsSpecifiedinadvanceBuildingaBenchmarkSpecializeasappropriateProvidevalueweightingsProvideconstraintstoportfoliomanagerEvaluationof

BondPortfolioPerformanceHowdidperformancecompareamongportfoliomanagersrelativetotheoverallbondmarketorspecificbenchmarks?Whatfactorsexplainorcontributetosuperiororinferiorbond-portfolioperformance?ABondMarketLineNeedameasureofrisksuchasbetacoefficientforequitiesDifficulttoachieveduetobondmaturityandcouponeffectonvolatilityofpricesCompositeriskmeasureisthebond’sdurationDurationreplacesbetaasriskmeasureinabondmarketlineBondMarketLineEvaluationPolicyeffectDifferenceinexpectedreturnduetoportfoliodurationtargetInterestrateanticipationeffectDifferentiatedreturnsfromchangingdurationoftheportfolioAnalysiseffectAcquiringtemporarilymispricedbondsTradingeffectShort-runchangesDecomposingPortfolioReturnsIntomaturity,sector,andqualityeffectsTotalreturnduringaperiodistheincomeeffectandapricechangeeffectTheyield-to-maturity(income)effectisthereturnaninvestorwouldreceiveifnothinghadhappenedtotheyieldcurveduringtheperiodInterestrateeffectmeasureschangesinthetermstructureofinterestratesduringtheperiodDecomposingPortfolioReturnsThesector/qualityeffectmeasuresexpectedimpactonreturnsbecauseofchangingyieldspreadsbetweenbondsindifferentsectorsandratingsTheresidualeffectiswhatisleftafteraccountingforthefirstthreefactorsAlargepositiveresidualwouldindicatesuperiorselectioncapabilitiesTime-seriesplotdemonstratesstrengthsandweaknessesofportfoliomanagerAnalyzingSourcesofReturnTotalreturn(R)madeupoftheeffectoftheinterestrateenvironment(I)andthecontributionofthemanagementprocess(C)R=I+CIistheexpectedrateofreturn(E)onaportfolioofdefault-freesecuritiesandtheunexpectedreturn(U)ontheTreasuryIndexI=E+UAnalyzingSourcesofReturnCiscomposedofM=returnfrommaturitymanagementS=returnfromspread/qualitymanagementB=returnattributabletotheselectionofspecificsecuritiesR=I+C=(E+U)+(M+S+B)ConsistencyofPerformanceAstudybyKritzmanrevealednorelationshipbetweenperformanceinthetwoperiodsexaminedinthestudyAfurthertestalsorevealednorelationshipbetweenpastandfutureperformanceevenamongthebestandworstperformersBasedontheseresults,KritzmanconcludedthatitwouldbenecessarytoexaminesomethingbesidespastperformancetodeterminesuperiorbondportfoliomanagersComputingPortfolioReturnsToevaluateportfolioperformance,wehavetomeasureitFromChapter1welearnedhowtocalculateaholdingperiodyield,whichequalsthechangeinportfoliovalueplu