The relevance of the information ratio and the alpha, two leading performance measures for multi-index models, depends on the type of portfolio held by investors.
Georges HübnerAffiliate Professor of Finance, EDHEC Business School.
We compare these measures with the generalized treynor ratio (GT R) on the quality of the rankings they produce. A precise measure yields similar rankings with alternative benchmarks. A stable measure leaves unchanged rankings with different model specifications. The outcome indicates the types of skills emphasized by portfolio managers. The GTR provides superior results with our sample of mutual funds, suggesting that managerial skills relate to the ability to generate alpha while controlling for systematic risk.
|Research Cluster :||Finance|