학술논문
Portfolio Performance Manipulation and Manipulation-proof Performance Measures.
Document Type
Article
Source
Subject
*Investments
*Portfolio performance
*Investment advisors
*Performance evaluation
*Mutual funds
*Hedging (Finance)
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Language
ISSN
0893-9454
Abstract
Numerous measures have been proposed to gauge the performance of active management. Unfortunately, these measures can be gamed. Our article shows that gaming can have a substantial impact on popular measures even in the presence of high transactions costs. Our article shows there are conditions under which a manipulation-proof measure exists and fully characterizes it. This measure looks like the average of a power utility function, calculated over the return history. The case for using our alternative ranking metric is particularly compelling for hedge funds whose use of derivatives is unconstrained and whose managers' compensation itself induces a nonlinear payoff. [ABSTRACT FROM AUTHOR]