PORTFOLIO PERFORMANCE AND THE "COST" OF TIMING DECISIONS

INVESTIGATION IS MADE OF THE IMPLICATIONS OF TREATING THE SYSTEMATIC RELATIVE RISK OF AN INVESTMENT PORTFOLIO AS A RANDOM VARIABLE, A MANAGEMENT DECISION VARIABLE. USING THE CAPITAL ASSET MODEL, IT IS FOUND THAT AGGREGATE PORTFOLIO RISK, AS WELL AS EXPECTED RETURN, WOULD BE AFFECTED BY THIS BEHAVIOR...

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Bibliographic Details
Published in:The Journal of finance (New York) 1977-06, Vol.32 (3), p.837-846
Main Author: Grant, Dwight
Format: Article
Language:English
Subjects:
Capital assets
Covariance
Estimation bias
Expected returns
Expected values
Investment risk
Performance metrics
Portfolio management
Portfolio performance
Random variables
Risk management
Systematic risk
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Summary:INVESTIGATION IS MADE OF THE IMPLICATIONS OF TREATING THE SYSTEMATIC RELATIVE RISK OF AN INVESTMENT PORTFOLIO AS A RANDOM VARIABLE, A MANAGEMENT DECISION VARIABLE. USING THE CAPITAL ASSET MODEL, IT IS FOUND THAT AGGREGATE PORTFOLIO RISK, AS WELL AS EXPECTED RETURN, WOULD BE AFFECTED BY THIS BEHAVIOR. THE QUESTION IS RAISED OF THE QUALITY OF TIMING NECESSARY TO COMPENSATE FOR THIS INCREASE IN AGGREGATE RISK. THE INVESTMENT PORTFOLIO IS CONSIDERED AS A WEALTH POSITION AND NOT AS AN ELEMENT OF A LARGER PORTFOLIO. AN ANALYSIS OF THE INFLUENCE OF SUCCESSFUL TIMING INDICATES THAT LEAST-SQUARES ESTIMATES OF JENSEN'S AND TREYNOR'S MEASURES OF RISK AND PERFORMANCE ARE POTENTIALLY BIASED. EQUATIONS. REFERENCES.
ISSN:0022-1082
1540-6261
DOI:10.1111/j.1540-6261.1977.tb01992.x