DANCEST 805 Lecture Notes - Lecture 14: Active Management, Flight Controller, Sharpe Ratio
Document Summary
Iapm s6: chapter 18 portfolio performance evaluation. 1. 1 investment clients, service providers & objectives of evaluation. Passive management: involves (1) capital allocation between cash (almost risk-free vehicles eg money market funds) and (2) designated risky portfolio constructed from one or more index funds or etfs. 1. 2 comparison groups: simplest way to adjust returns for portfolio risk: compare rates of return with those of other investment funds with similar characteristics. 1. 3 basic performance-evaluation statistics (p. 594-595: basic performance evaluation relies on the index models and capm. Expected returns over the period using sample average return: capm hypothesis: market portfolio is mean-variance efficient + alpha of all is zero. Performance of two managed portfolios (p and q) and benchmark portfolio (m) and cash equivalents. Risk premium of portfolio p* in terms of sharpe ratio of p. Risk premium of benchmark portfolio in terms of sharpe.
