Portfolio Performance Manipulation and Manipulation-proof Performance Measures

Jonathan Ingersoll and Ivo Welch

The Review of Financial Studies, 2007, vol. 20, issue 5, 1503-1546

Abstract: Numerous measures have been proposed to gauge the performance of active management. Unfortunately, these measures can be gamed. Our article shows that gaming can have a substantial impact on popular measures even in the presence of high transactions costs. Our article shows there are conditions under which a manipulation-proof measure exists and fully characterizes it. This measure looks like the average of a power utility function, calculated over the return history. The case for using our alternative ranking metric is particularly compelling for hedge funds whose use of derivatives is unconstrained and whose managers' compensation itself induces a nonlinear payoff. , Oxford University Press.

Date: 2007
References: Add references at CitEc
Citations: View citations in EconPapers (224)

Downloads: (external link)
http://hdl.handle.net/10.1093/rfs/hhm025 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Portfolio Performance Manipulation and Manipulation-Proof Performance Measures (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:rfinst:v:20:y:2007:i:5:p:1503-1546

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

The Review of Financial Studies is currently edited by Itay Goldstein

More articles in The Review of Financial Studies from Society for Financial Studies Oxford University Press, Journals Department, 2001 Evans Road, Cary, NC 27513 USA.. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().