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ch18 - that predicted by CAPM It is the portfolio’s alpha...

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Investment Analysis Chapter 18 Performance Evaluation and Active Portfolio Management I. Risk-adjusted returns a. Comparison groups i. Comparison universe: the set of portfolio managers with similar investment styles that is used in assessing the relative performance of an individual portfolio manager. The collection of funds to which performance is compared b. Risk adjustments i. Sharpe measure divides average portfolio excess return over the sample period by the standard deviation of returns over that period. Reward to volatility. Rp – Rf/SDp ii. Treynor measure: ratio of portfolio excess return to beta. Uses systematic risk instead of total risk. Rp – Rf/Beta(p) iii. Jensen measure: the average return on the porfotlio over and above
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Unformatted text preview: that predicted by CAPM. It is the portfolio’s alpha value. = Rp – [Rf + B (Rm – Rf)] c. The M-squared measure of performance d. Choosing the right measure of risk e. Risk adjustments with changing portfolio composition i. One potential problem with risk-adjustment techniques is that they all assume that portfolio risk, whether it is measured by standard deviation or beta, is constant over the relevant time period II. Style analysis III. Performance attribution procedures a. The first step is to establish a benchmark called a bogey b. Asset allocation decisions c. Sector and security selection decisions IV.The Lure of active management...
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