CaltechAUTHORS
  A Caltech Library Service

Generalized Portfolio Performance Measures: Optimal Overweighting of Fees Relative to Sample Returns

Levy, Moshe and Roll, Richard (2017) Generalized Portfolio Performance Measures: Optimal Overweighting of Fees Relative to Sample Returns. Social Science Working Paper, 1430. California Institute of Technology , Pasadena, CA. (Unpublished) https://resolver.caltech.edu/CaltechAUTHORS:20171103-131935396

[img] PDF (sswp 1430 - Jul. 27, 2017) - Submitted Version
See Usage Policy.

424Kb

Use this Persistent URL to link to this item: https://resolver.caltech.edu/CaltechAUTHORS:20171103-131935396

Abstract

Performance measures such as alpha and the Sharpe ratio are typically based on sample returns net of fees. This implies the same weighting to sample returns and to fees. However, sample return parameters are noisy estimates of true parameters, while fees are known with certainty. Thus, intuition suggests that fees should be given more weight than sample returns. We formalize this intuition, and derive the optimal overweighting of fees. We show that the resulting generalized performance measures are better predictors of future net performance than the standard performance measures, and they better explain future fund flows.


Item Type:Report or Paper (Working Paper)
Group:Social Science Working Papers
Subject Keywords:Mutual fund performance, alpha, Sharpe ratio, geometric mean, shrinkage, fees.
Series Name:Social Science Working Paper
Issue or Number:1430
Classification Code:JEL: G11
Record Number:CaltechAUTHORS:20171103-131935396
Persistent URL:https://resolver.caltech.edu/CaltechAUTHORS:20171103-131935396
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:82938
Collection:CaltechAUTHORS
Deposited By: Jacquelyn Bussone
Deposited On:03 Nov 2017 20:31
Last Modified:03 Oct 2019 19:00

Repository Staff Only: item control page