Performance Evaluation and Attribution of Security Portfolios

Chapter 2

Returns-Based Performance Evaluation Models

Abstract

This chapter provides an introduction to the returns-based models used today to evaluate asset managers: equity and fixed-income mutual fund, hedge fund, and institutional managers. Advanced econometric modifications of such models, designed to accommodate the complexities of asset manager strategies and security characteristics, are also briefly discussed.

2.1 Introduction

An analysis of the rates-of-return, over time, of an asset manager is the most basic and important starting point for evaluating the performance of that manager. For an index fund, a comparison of returns with those of the index that it tracks informs investors about how efficiently the fund mirrors the index as well ...