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Open Access Publications from the University of California

Portfolio Performance Evaluation on Various Financial Models

  • Author(s): Murphy, John Lee
  • Advisor(s): Christou, Nicolas
  • et al.
Abstract

Portfolio performance evaluation is a tool used to judge how a portfolio performs during given period. The main evaluation methods include traditional (classical) portfolio performance evaluation and modern portfolio performance evaluation.

This thesis focuses on four typical measures of traditional (classical) portfolio performance evaluation, including Jensen’s alpha, Sharpe ratio, generalized Sharpe ratio and Treynor ratio. These four measures will be applied to three financial models: single index model, constant correlation model and multigroup model and be compared to test which measure evaluates more accurately in different situations.

We also apply two market timing ability models to different portfolios based on these three financial models to compare which measure predicts portfolio performance more accurately by collecting the measures from a given period and examining the market timing ability in the following test period.

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