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1、Lecture Presentation Software to accompanyInvestment Analysis and Portfolio ManagementSeventh Editionby Frank K.Reilly&Keith C.BrownChapter 26Chapter 26-Evaluation of Portfolio PerformanceQuestions to be answered:What major requirements do clients expect from their portfolio managers?What can a port
2、folio manager do to attain superior performance?What is the peer group comparison method of evaluating an investors performance?Chapter 26-Evaluation of Portfolio PerformanceWhat is the Treynor portfolio performance measure?What is the Sharpe portfolio performance measure?What is the critical differ
3、ence between the Treynor and Sharpe portfolio performance measures?Chapter 26-Evaluation of Portfolio PerformanceWhat is the Jensen portfolio performance measure,and how does it relate to the Treynor measure?What is the information ratio and how is it related to the other performance measures?When e
4、valuating a sample of portfolios,how do you determine how well diversified they are?Chapter 26-Evaluation of Portfolio PerformanceWhat is the bias found regarding the composite performance measures?What is the Fama portfolio performance measure and what information does it provide beyond other measu
5、res?What is attribution analysis and how can it be used to distinguish between a portfolio managers market timing and security selection skills?Chapter 26-Evaluation of Portfolio PerformanceWhat is the Roll“benchmark error”problem,and what are the two factors that are affected when computing portfol
6、io performance measures?What is the impact of global investing on the benchmark error problem?What are customized benchmarks?What are the important characteristics that any benchmark should possess?Chapter 26-Evaluation of Portfolio PerformanceHow do bond portfolio performance measures differ from e
7、quity portfolio performance measures?In the Wagner and Tito bond portfolio performance measure,what is the measure of risk used?What are the components of the Dietz,Fogler,and Hardy bond portfolio performance measure?Chapter 26-Evaluation of Portfolio PerformanceWhat are the sources of return in the
8、 Fong,Pearson,and Vasicek bond portfolio performance measure?What are the time-weighted and dollar-weighted returns and which should be reported under AIMRs Performance Presentation Standards?What is Required of a Portfolio Manager?1.The ability to derive above-average returns for a given risk class
9、Superior risk-adjusted returns can be derived from either superior timing orsuperior security selection2.The ability to diversify the portfolio completely to eliminate unsystematic risk.relative to the portfolios benchmarkComposite Portfolio Performance MeasuresPortfolio evaluation before 1960rate o
10、f return within risk classesPeer group comparisonsno explicit adjustment for riskdifficult to form comparable peer groupTreynor portfolio performance measuremarket riskindividual security riskintroduced characteristic lineTreynor Portfolio Performance MeasureTreynor recognized two components of risk
11、Risk from general market fluctuationsRisk from unique fluctuations in the securities in the portfolioHis measure of risk-adjusted performance focuses on the portfolios undiversifiable risk:market or systematic riskTreynor Portfolio Performance MeasureThe numerator is the risk premiumThe denominator
12、is a measure of riskThe expression is the risk premium return per unit of riskRisk averse investors prefer to maximize this valueThis assumes a completely diversified portfolio leaving systematic risk as the relevant riskTreynor Portfolio Performance MeasureComparing a portfolios T value to a simila
13、r measure for the market portfolio indicates whether the portfolio would plot above the SMLCalculate the T value for the aggregate market as follows:Treynor Portfolio Performance MeasureComparison to see whether actual return of portfolio G was above or below expectations can be made using:Sharpe Po
14、rtfolio Performance MeasureRisk premium earned per unit of riskTreynor versus Sharpe MeasureSharpe uses standard deviation of returns as the measure of riskTreynor measure uses beta(systematic risk)Sharpe therefore evaluates the portfolio manager on the basis of both rate of return performance and d
15、iversificationThe methods agree on rankings of completely diversified portfoliosProduce relative not absolute rankings of performanceJensen Portfolio Performance MeasureAlso based on CAPMExpected return on any security or portfolio isJensen Portfolio Performance MeasureAlso based on CAPMExpected ret
16、urn on any security or portfolio isWhere:E(Rj)=the expected return on securityRFR=the one-period risk-free interest ratej=the systematic risk for security or portfolio jE(Rm)=the expected return on the market portfolio of risky assetsThe Information Ratio Performance MeasureAppraisal ratiomeasures a
17、verage return in excess of benchmark portfolio divided by the standard deviation of this excess returnApplication of Portfolio Performance MeasuresPotential Bias of One-Parameter Measurespositive relationship between the composite performance measures and the risk involvedalpha can be biased downwar
18、d for those portfolios designed to limit downside riskComponents of Investment PerformanceFama suggested overall performance,which is its return in excess of the risk-free ratePortfolio Risk+SelectivityFurther,if there is a difference between the risk level specified by the investor and the actual r
19、isk level adopted by the portfolio manager,this can be further refinedInvestors Risk+Managers Risk+SelectivityComponents of Investment PerformanceThe selectivity measure is used to assess the managers investment prowessThe relationship between expected return and risk for the portfolio is:Components
20、 of Investment PerformanceThe market line then becomes a benchmark for the managers performanceComponents of Investment PerformanceThe selectivity component can be broken into two partsgross selectivity is made up of net selectivity plus diversificationComponents of Investment PerformanceAssuming th
21、e investor has a target level of risk for the portfolio equal to T,the portion of overall performance due to risk can be assessed as follows:Relationship Among Performance MeasuresTreynorSharpeJensenInformation RatioFama net selectivity measuresHighly correlated,but not perfectly soPerformance Attri
22、bution AnalysisAllocation effectSelection effectMeasuring Market Timing SkillsTactical asset allocation(TAA)Attribution analysis is inappropriateindexes make selection effect not relevantmultiple changes to asset class weightings during an investment periodRegression-based measurementMeasuring Marke
23、t Timing SkillsFactors That Affect Use of Performance MeasuresMarket portfolio difficult to approximateBenchmark errorcan effect slope of SMLcan effect calculation of Betagreater concern with global investingproblem is one of measurementSharpe measure not as dependent on market portfolioBenchmark Po
24、rtfoliosPerformance evaluation standardUsually a passive index or portfolioMay need benchmark for entire portfolio and separate benchmarks for segments to evaluate individual managersCharacteristics of BenchmarksUnambiguousInvestableMeasurableAppropriateReflective of current investment opinionsSpeci
25、fied in advanceBuilding a BenchmarkSpecialize as appropriateProvide value weightingsProvide constraints to portfolio managerEvaluation of Bond Portfolio PerformanceHow did performance compare among portfolio managers relative to the overall bond market or specific benchmarks?What factors explain or
26、contribute to superior or inferior bond-portfolio performance?A Bond Market LineNeed a measure of risk such as beta coefficient for equitiesDifficult to achieve due to bond maturity and coupon effect on volatility of pricesComposite risk measure is the bonds durationDuration replaces beta as risk me
27、asure in a bond market lineBond Market Line EvaluationPolicy effectDifference in expected return due to portfolio duration targetInterest rate anticipation effectDifferentiated returns from changing duration of the portfolioAnalysis effectAcquiring temporarily mispriced bondsTrading effectShort-run
28、changesDecomposing Portfolio ReturnsInto maturity,sector,and quality effectsTotal return during a period is the income effect and a price change effectThe yield-to-maturity(income)effect is the return an investor would receive if nothing had happened to the yield curve during the periodInterest rate
29、 effect measures changes in the term structure of interest rates during the periodDecomposing Portfolio ReturnsThe sector/quality effect measures expected impact on returns because of changing yield spreads between bonds in different sectors and ratingsThe residual effect is what is left after accou
30、nting for the first three factorsA large positive residual would indicate superior selection capabilitiesTime-series plot demonstrates strengths and weaknesses of portfolio managerAnalyzing Sources of ReturnTotal return(R)made up of the effect of the interest rate environment(I)and the contribution
31、of the management process(C)R=I+CI is the expected rate of return(E)on a portfolio of default-free securities and the unexpected return(U)on the Treasury IndexI=E+UAnalyzing Sources of ReturnC is composed ofM=return from maturity managementS=return from spread/quality managementB=return attributable
32、 to the selection of specific securitiesR=I +C =(E+U)+(M+S+B)Consistency of PerformanceA study by Kritzman revealed no relationship between performance in the two periods examined in the studyA further test also revealed no relationship between past and future performance even among the best and wor
33、st performersBased on these results,Kritzman concluded that it would be necessary to examine something besides past performance to determine superior bond portfolio managersComputing Portfolio ReturnsTo evaluate portfolio performance,we have to measure itFrom Chapter 1 we learned how to calculate a
34、holding period yield,which equals the change in portfolio value plus income divided by beginning portfolio value:Computing Portfolio ReturnsDollar-weighted rate of return(DWRR)Internal rate of return on the portfolios cash flowsTime-weighted rate of return(TWRR)Geometric average returnTWRR is better
35、Considers actual period by period portfolio returnsNo size bias-inflows and outflows could affect resultsPerformance Presentation StandardsAIMR PPS have the following goals:achieve greater uniformity and comparability among performance presentationimprove the service offered to investment management
36、 clientsenhance the professionalism of the industrybolster the notion of self-regulationPerformance Presentation StandardsTotal return must be usedTime-weighted rates of return must be usedPortfolios valued quarterly and periodic returns geometrically linkedComposite return performance(if presented)
37、must contain all actual fee-paying accountsPerformance calculated after trading expensesTaxes must be recognized when incurredAnnual returns for all years must be presentedDisclosure requirementsThe InternetInvestments OnlineEnd of Chapter 26Evaluation of Portfolio Performance1、每一个成功者都有一个开始。勇于开始，才能找
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