Essentials of Investments: Chapter 18 - Active Management and Performance Measurement to introduce the most widespread approaches to risk adjustment for performance evaluation. It includes Introduction, The Conventional Theory of Performance Evaluation, Market Timing. | Bodie Kane Marcus Perrakis Ryan Chapter 20 INVESTMENTS, Fourth Canadian Edition Active Management and Performance Measurement Slide 20-1 Copyright © McGraw-Hill Ryerson Limited, 2003 Bodie Kane Marcus Perrakis Ryan INVESTMENTS, Fourth Canadian Edition Chapter Summary Objective: To introduce the most widespread approaches to risk adjustment for performance evaluation. Slide 20-2 Introduction The Conventional Theory of Performance Evaluation Market Timing Copyright © McGraw-Hill Ryerson Limited, 2003 Bodie Kane Marcus Perrakis Ryan INVESTMENTS, Fourth Canadian Edition The Objective of Active Management Are markets totally efficient? Some managers outperform the market for extended periods While the abnormal performance may not be too large, it is too large to be attributed solely to noise Evidence of anomalies such as the turn of the year exist The evidence suggests that there is some role for active management Slide 20-3 Copyright © McGraw-Hill Ryerson Limited, 2003 Bodie Kane Marcus Perrakis Ryan INVESTMENTS, Fourth Canadian Edition Introduction to Performance Appraisal Complicated subject Theoretically correct measures are difficult to construct Different statistics or measures are appropriate for different types of investment decisions or portfolios Many industry and academic measures are different The nature of active management leads to measurement problems Slide 20-4 Copyright © McGraw-Hill Ryerson Limited, 2003 Bodie Kane Marcus Perrakis Ryan INVESTMENTS, Fourth Canadian Edition Abnormal Performance What is abnormal? Abnormal performance is measured: Benchmark portfolio Market adjusted Market model / index model adjusted Reward to risk measures such as the Sharpe Measure: E (rp-rf) / sp Slide 20-5 Copyright © McGraw-Hill Ryerson Limited, .
