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Generalized Performance Measures: Optimal Overweighing of Fees Relative to Sample Returns

Levy, Moshe and Roll, Richard (2018) Generalized Performance Measures: Optimal Overweighing of Fees Relative to Sample Returns. Journal of Portfolio Management, 44 (3). pp. 66-75. ISSN 0095-4918. https://resolver.caltech.edu/CaltechAUTHORS:20180321-085712120

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Abstract

Performance measures such as alpha and the Sharpe ratio are typically based on sample returns net of fees. This implies the same weighing 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. The authors formalize this intuition, and derive the optimal overweighing of fees. They 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:Article
Related URLs:
URLURL TypeDescription
https://doi.org/10.3905/jpm.2018.44.3.066DOIArticle
http://jpm.iijournals.com/content/44/3/66PublisherArticle
Additional Information:© 2018 Pageant Media Ltd. Published online January 24, 2018.
Issue or Number:3
Record Number:CaltechAUTHORS:20180321-085712120
Persistent URL:https://resolver.caltech.edu/CaltechAUTHORS:20180321-085712120
Official Citation:Generalized Performance Measures: Optimal Overweighing of Fees Relative to Sample Returns. Moshe Levy, Richard Roll. The Journal of Portfolio Management Jan 2018, 44 (3) 66-75; DOI: 10.3905/jpm.2018.44.3.066
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:85388
Collection:CaltechAUTHORS
Deposited By: Tony Diaz
Deposited On:26 Mar 2018 22:04
Last Modified:03 Oct 2019 19:30

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