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Performance Evaluation and Attribution of Security Portfolios by Russ Wermers, Bernd R. Fischer

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Chapter 3

Returns-Based Performance Measures

Abstract

This chapter provides an introduction to measures of performance that are based solely on the realized returns of an asset manager. Here, we start with simple measures that do not require a regression model to be estimated: the Sharpe measure and tracking error. Then, we discuss several of the best performance regression models for equity and fixed-income portfolios. Finally, we present some commonly used measures of performance based on these regressions: alpha, the Treynor ratio, and the Information ratio.

Keywords

Returns-based performance measures, luck vs. skill, Sharpe Ratio, tracking error, Jensen measure, alpha, benchmark choice, Treynor Ratio, information ratio

3.1 Introduction

Investment ...

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