Performance Evaluation and Attribution of Security Portfolios

Chapter 4

Portfolio-Holdings Based Performance Evaluation

Abstract

This chapter reviews recent academic research that uses portfolio holdings to evaluate the performance of an asset manager. These methods overcome the benchmark-choice problem discussed by Roll (1978), as well as exhibiting other advantages over returns-based methods such as providing a much more detailed and precise breakdown of the sources of manager skills. Three main approaches have emerged in the literature. Grinblatt and Titman (1993) develop a method to evaluate performance when the proper benchmarks (or risk factors) for a portfolio are unknown or otherwise unavailable—this approach uses the past portfolio of a manager as the benchmark for her current portfolio. Daniel et ...