Portfolio Construction, Measurement, and Efficiency: Essays in Honor of Jack Treynor, edited by John Guerard, Jr., Springer International Publishers, 2017, pp.49-71
27 Pages Posted: 2 Nov 2014 Last revised: 6 Feb 2017
Date Written: May 16, 2016
The work of Treynor and Mazuy (1966) spawned an extensive literature on returns-based measurement of portfolio performance which distinguishes between a manager's ability to act on information specific to an individual asset (asset selection) and ability to forecast systematic risk premiums and adjust portfolio exposures accordingly (market, or factor, timing). In a world in which dynamic trading strategies and derivative securities that provide payoffs which are nonlinear in factor returns, obtaining a clear separation between asset selection and market timing is difficult. Additionally, predictability of risk premiums causes a confounding of timing based on public information versus true skill. However, disaggregating the measurement of the components allows us to obtain more accurate measures of the quantity of interest, total portfolio performance.
Keywords: Market Timing, Portfolio Performance, Return-Based Performance
JEL Classification: G1, G11, G12
Suggested Citation: Suggested Citation