Grinold, Richard, Kahn, Ronald

 

Grinold, Richard, Kahn, Ronald

17

38

 

McGraw-Hill (Visit publisher website)

2000

English

 

 

 

Basic

 

 

Investment management, portfolio theory, performance attribution, performance measurement, information ratio, geometric average return, average log return, average return, CAPM, Sharpe ratio, returns regression, Jensen approach, Bayesian correlation, heteroskedasticity, autocorrelation, benchmark timing, style analysis, portfolio-based performance analysis, active systematic return, expected active beta return, active beta surprise, active benchmark timing return

 

*** From the book *** The lessons of this chapter are: * The goal of performance analysis is to separate skill from luck. Cross-sectional comparisons are not up to this job. * Returns-based performance analysis is the simplest method for analyzing both return and risk, and distinguishing skill from luck. * Portfolio-based performance analysis is the most sophisticated approach to distinguishing skill and luck along many different dimensions. * Performance analysis is most valuable to the sponsor (client) when there is an ex ante agreement on the manager’s goals and an indication of how the manager intends to meet those goals. * Performance analysis is valuable to the manager in that it lets the manager see which active management decisions are compensated and which are not.

 

17.1 Introduction
17.2 Skill and luck
17.3 Defining returns
17.4 Cross-sectional comparisons
17.5 Returns-based performance analysis: basic
17.6 Returns-based performance analysis: advanced
17.7 Portfolio-based performance analysis
17.8 Summary
Notes
References
Problems
Technical appendix

 

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Mathematically rigorous and meticulously organized, Active Portfolio Management broke new ground when it first became available to investment managers in 1994. By outlining an innovative process to uncover raw signals of asset returns, develop them into refined forecasts, then use those forecasts to construct portfolios of exceptional return and minimal risk (portfolios that consistently beat the market), this hallmark book helped thousands of investment managers. Active Portfolio Management, Second Edition, now sets the bar even higher. This volume details how to apply economics, econometrics, and operations research to solving practical investment problems, and uncovering superior profit opportunities. It outlines an active management framework that begins with a benchmark portfolio, then defines exceptional returns as they relate to that benchmark. Beyond the comprehensive treatment of the active management process covered previously, this new edition expands to cover asset allocation, long/short investing, information horizons, and other topics relevant today. It revisits a number of discussions, shedding new light on some of today`s most pressing issues, including risk, dispersion, market impact, and performance analysis, while providing empirical evidence where appropriate. The result is an updated, comprehensive set of strategic concepts and rules of thumb for guiding the process of-and increasing the profits from-active investment management.