Measure account for risk, Risk Management

The asset management industry uses a variety of "performance measures" to asses the relative performance of managed portfolios or funds, mostly (but not always) relative to an appropriate benchmark. One such measure, the "Sharpe ratio", was introduced in the  lectures. The "Treynor ratio" is defined in very much the same way, with the only exception that the denominator is not the portfolio's volatility ("sigma"), but instead it's  "beta" (i.e. the slope coefficient in a CAPM-style regression of portfolio returns onto a benchmark). Another performance measure used frequently is "alpha" (the intercept in the aforementioned regression). There are other measures (e.g. "M2" or the "Information  Ratio"); feel free to include any of these in your discussion at your discretion.

(a) Provide a discussion of the characteristics of these performance measures (and any others you may choose to include). Discuss in particular:

  • What exactly is being measured?
  • How does the measure account for risk (and what kind of risk)?
  • What are the differences between the measures?

(b) Discuss what performance measure(s) you would employ (and why?) if you were any of the following:

  • The manager of a "fund of funds", selecting a portfolio of funds.
  • A "high-net-worth" individual choosing a hedge fund to invest in.
  • An individual choosing a pension fund to invest their life savings.

(c) Below are two statements that we found in articles on performance measures.

Chose either one of these statements and provide a brief discussion:

 Statement (1):

 Investors use performance measures to decide where to drop their money. But clearly, since very few of us can see into the future, we are constrained to using historical (past) data to compute those measures. But investors probably do not care about how much they would have made if they had invested in the fund in the past, but how much they will make in the future if they invest now. The question is thus, how much does past performance tell us about future performance? Based on the empirical evidence, the answer seems to be: very little!

Posted Date: 2/22/2013 6:12:23 AM | Location : United States







Related Discussions:- Measure account for risk, Assignment Help, Ask Question on Measure account for risk, Get Answer, Expert's Help, Measure account for risk Discussions

Write discussion on Measure account for risk
Your posts are moderated
Related Questions
Stakeholder Analysis In the case of syringe management plan, the stakeholders include Maribyrnong Council, Yarra Council and other neighboring ones, manufacturers, distributors

The marketing department of a vitamin water company wishes to determine the maximum expected payoff from introducing a new strawberry drink. What decision, in terms of choosing the

I want an assignment on a exporting and importing company and how does it do currency hedging and reduce the risk of currency fluctuation

Q. Show Security market line? The CML represent the equilibrium relation between the expected return and standard for efficient portfolio. But it does not indicate how individu

Question: a) Using illustrative and numerical example, differentiate between speculation and arbitraging in the context of foreign exchange market. b) One year borrowing and

Bull-Bear Market Risk This risk arises from the variability in the market returns resulting from alternating bull and bear market forces. Ø when security index rises fair

Critically assess the risk-based approach to external audit with particular reference to the audit of Home Retail Group plc. Note: You must give examples of how you might col

Question 1: (a) Risk Assessment is essentially a five steps process. Describe how each of these steps should be carried out to ensure a safe and healthy place of work. (b)

Political risk analysis is conducted by a company considering international operations and normally focuses on the  political and cultural differences between the home and targ

Sibling Incorporated has a beta of 1.0. If the expected return on the market is 12%, what is the expected return on Sibling Incorporated''s stock? Answer 12% 14% 10% ca