Portfolio Performance Evaluation — Overview

A fund manager who posts 18% returns in a bull year has told you almost nothing useful. Whether that is skill or exposure to a risk factor you already could have bought cheaply — and whether it will repeat — is the question that portfolio performance evaluation tries to answer rigorously. This topic develops the econometric and statistical machinery for separating alpha (genuine excess return per unit of risk) from beta disguised as alpha, for testing whether managers can time the market, and for deciding when a track record is long enough to be believed.

The lessons move from single-fund diagnostics (risk-adjusted measures, timing tests) through cross-fund evidence (persistence, survivorship bias) to the institutional vehicles through which investors access management (open-end funds, ETFs, closed-end funds) and the standards used to audit the analysts who supply the buy/sell recommendations.

1. Contents
2. Prerequisites