Decomposing Performance

Daniel Hoechle (), Markus Schmid and Heinz Zimmermann ()

No 1216, Working Papers on Finance from University of St. Gallen, School of Finance

Abstract: We present a new methodology for decomposing the (risk-adjusted) performance in empirical finance. Our technique offers the same straightforward economic intuition and all the statistical benefits of the portfolio sorts approach, in particular robustness to cross-sectional correlation, and in addition resolves the major drawbacks of portfolio sorts. Most importantly, our regression-based methodology handles multiple dimensions and continuous firm, fund, or investor characteristics. Moreover, the technique allows for relying on standard Wald-tests as an alternative to the popular Gibbons, Ross, and Shanken (1989) test. We illustrate our methodology with an asset pricing application and a long-horizon event study.

Keywords: Performance measurement; Alpha decomposition; Portfolio sorts; Fama-French model. (search for similar items in EconPapers)
JEL-codes: C21 D1 G14 (search for similar items in EconPapers)
Pages: 59 pages
Date: 2012-06, Revised 2015-11
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:usg:sfwpfi:2012:16

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