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A contingent claim approach to performance evaluation

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  • Glosten, L. R.
  • Jagannathan, R.

Abstract

We show that valuing performance is equivalent to valuing a particular contingent claim on an index portfolio. In general the form of the contingent claim is not known and must be estimated. We suggest approximating the contingent claim by a series of options. We illustrate the use of our method by evaluating the performance of 130 mutual funds during the period 1968–82. We find that the relative performance rank of a fund is rather insensitive to the choice of the index, even though the actual value of the services of the portfolio manager depends on the choice of the index.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Empirical Finance.

Volume (Year): 1 (1994)
Issue (Month): 2 (January)
Pages: 133-160

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Handle: RePEc:eee:empfin:v:1:y:1994:i:2:p:133-160

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Web page: http://www.elsevier.com/locate/jempfin

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  18. Mark Grinblatt & Sheridan Titman, . "Portfolio Performance Evaluation: Old Issues and New Insights," Rodney L. White Center for Financial Research Working Papers 22-88, Wharton School Rodney L. White Center for Financial Research.
  19. Lehmann, Bruce N & Modest, David M, 1987. " Mutual Fund Performance Evaluation: A Comparison of Benchmarks and Benchmark Comparisons," Journal of Finance, American Finance Association, vol. 42(2), pages 233-65, June.
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