An alternative approach for portfolio performance evaluation: enabling fund evaluation relative to peer group via Malkiel’s monkey

Yongjae Lee, Do-Gyun Kwon, Woo Chang Kim and Frank Fabozzi ()

Applied Economics, 2018, vol. 50, issue 40, 4318-4327

Abstract: We propose an implementable portfolio performance evaluation procedure that compares a portfolio with respect to the portfolios constructed by an infinite number of Malkiel’s blindfolded monkeys, or equivalently the whole enumeration of all possible portfolios. We argue that this approach exhibits two main advantages. First, it does not require any benchmark portfolios because a portfolio is being compared to an infinite number of portfolios. Second, it is market condition invariant. Since the market conditions are already reflected in the portfolio performances of an infinite blindfolded monkeys, our measure of portfolio performances is invariant to volatile market conditions.

Date: 2018
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DOI: 10.1080/00036846.2018.1444263

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