BUSI 4502 Lecture Notes - Lecture 12: Survivorship Bias, Tracking Error, Active Return
30 Aug 2018
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Document Summary
Manager universes have become standards for investment performance evaluations. The author suggests the two main reasons manager universe is being use as popular performance evaluation tool are convenience and na ve appeal. The data are widely available at a relatively low cost and is taken for granted. Superior managers adopt active investment management and are expected to produce above average return for three to five years. The author questioned the validity of manager universes as a performance benchmark as it has never been demonstrated before. The validity of manager universes as a performance benchmark is being discussed based on three perspectives listed below: conceptual shortcomings. Benchmark is known to be a passive representation of a manager"s investment process and securities are typically weighted in a consistent manner. The characteristics of a valid benchmark are unambiguous, investable, measureable, appropriate, reflect of current investment opinions and specified in advance. The names and weights of securities constituting the benchmark should be listed clearly.
