Portfolio Performance Measurement: Theory and Applications

REVIEW OF FINANCIAL STUDIES Vol. 9 No. 2

Posted: 20 May 1998

See all articles by Zhiwu Chen

Zhiwu Chen

University of Hong Kong, Faculty of Business Economics (HKU Business School); Asia Global Institute, University of Hong Kong

Peter J. Knez

affiliation not provided to SSRN

Abstract

Any admissible portfolio performance measure should satisfy four minimal conditions: it assigns zero performance to each reference portfolio and it is linear, continuous and nontribial. Such an admissible measure exists if and only if the securities market obeys the law of one price. A positive admissible measure exists if and only if there is not arbitrage. This paper characterizes the (infinite) set of admissible performance measures. It is shown that performance evaluation is generally quite arbitrary. A mutual fund data set is also used to demonstrate how the measurement method developed here can be applied.

JEL Classification: G11

Suggested Citation

Chen, Zhiwu and Knez, Peter J., Portfolio Performance Measurement: Theory and Applications. REVIEW OF FINANCIAL STUDIES Vol. 9 No. 2, Available at SSRN: https://ssrn.com/abstract=7543

Zhiwu Chen

University of Hong Kong, Faculty of Business Economics (HKU Business School) ( email )

Pokfulam Road
Hong Kong
Hong Kong

Asia Global Institute, University of Hong Kong ( email )

Room 328-348, Main Building
The University of Hong Kong
Pokfulam
Hong Kong

Peter J. Knez (Contact Author)

affiliation not provided to SSRN

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