Mutual fund performance measurement and fund rating.
Date of Issue2006
College of Humanities, Arts, and Social Sciences
How to measure and rate the performance of funds is the main question that perplexes the fund industry. We show that the measure proposed by Sharpe, which is derived from return-based style analysis, is superior to other measures by a comparative simulation study. We formally develop the econometric methodology on how to implement it, and show that the measure has several advantages because of its quadratic programming estimation techniques instead of the regression method of traditional measures.