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Unformatted text preview: - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ~ - - - - - ~ - - - - - -M2ofPortfolioPWhichisabetterportfolio?PQM"Sharpe0.450.510.19Et 'fICMLIM22.192.690.001M;CA,~f'tiAlpha1.635.280.00"M ~'tABeta0.69lAO1.0P-t,!Treynor4.00SAO1.63!,1.958.980.00!cr.I..AR0.840.590.000""( l. .R20.910.641.00M2To computethe M2 measurefor a managedportfolioP,weform alportfoliocomprisedofPandT-bills which has the se standarddeviationas a marketindex such as the S&P5O.For example,if the managedportfoliohas 1.5 times thestandarddeviationof the index, the mimickingportfoliowouldbe two-thirdsinvestedin P and one-thirdin T-bills.The mimickingportfolio,which we calr,JJasthe samestandarddeviationas the index~.So now we can comparetheir performancebimplycomparingtheir returns.The M2 measureisMakingInferencesfromNoisyDataThe magnitudeof portfolioover (or under) performanceistypicallysmall comparedto some benchmarkreturn....
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This note was uploaded on 09/07/2011 for the course FINANCE 320 taught by Professor Sapp during the Fall '10 term at Iowa State.

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KIC000039 - - - - - - - - - - - - - - - - - - - - - - - - -...

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