Week 9 - Week 9 Emily Lo Performance Measurements Risk...

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Week 9 Emily Lo
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Performance Measurements Risk adjusted measurements - comparing returns alone are not meaningful if risk is not taken into accounted Compare the portfolio’s measurement to that of the benchmark to determine performance Sharpe Index Treynor Index Jensor alpha Appraisal/Information ratio
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Sharpe Index Average excess return over the sample period per unit of total risk Measures the reward to volatility trade-off Benchmark: According to CAPM, market portfolio offers the largest Sharpe Index so no portfolio sits above CML in theory if all assets are fairly priced If Sharpe Index of portfolio is greater than that of market, the portfolio has beaten the market generating a higher risk adjusted return Disadvantage: When to use? When the portfolio represents the entire investment fund p f p r r Market Sharpe index - The numerical value is not easy to interpret - Penalises portfolios that are not diversified
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Treynor Index Excess return per unit of systematic risk
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Week 9 - Week 9 Emily Lo Performance Measurements Risk...

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