Benchmark-based evaluation of portfolio performance: a characterization

Aleksandr G. Alekseev () and Mikhail Sokolov
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Aleksandr G. Alekseev: Georgia State University

Annals of Finance, 2016, vol. 12, issue 3, No 6, 409-440

Abstract: Abstract Benchmarking is a universal practice in portfolio management and is well-studied in the optimal portfolio selection literature. This paper derives axiomatic foundations of the relative return, which underlies a benchmark-based evaluation of portfolio performance. We show that the existence of a benchmark naturally arises from a few basic axioms and is tightly linked to the economic theory. Our method relies on the use of both axiomatic and economic approaches to index number theory. We also analyze the problem of optimal portfolio selection under complete uncertainty about a future price system, where the objective function is the relative return.

Keywords: Portfolio performance; Compound annual growth rate; Benchmarking; Index number theory; Portfolio choice under uncertainty (search for similar items in EconPapers)
JEL-codes: C43 G11 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (4)

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DOI: 10.1007/s10436-016-0286-4

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