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Portfolio Performance and the Investment Horizon

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  • Haim Levy

    (The Hebrew University of Jerusalem)

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    Abstract

    Following the equilibrium model which has been developed by Sharpe, Lintner and Treynor, several authors have developed one-parameter indexes as measures of performance. In this paper, it is shown that as long as the "true" horizon does not coincide with the horizon assumed in the empirical research, the one-parameter indexes contain a systematic bias, even when one assumes a perfect market. In conducting empirical research or in evaluating the performance of the management of a portfolio, more attention should be devoted to the selection of the investment horizon, since the magnitude as well as the direction of the systematic bias is a function of this factor.

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    File URL: http://dx.doi.org/10.1287/mnsc.18.12.B645
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    Bibliographic Info

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 18 (1972)
    Issue (Month): 12 (August)
    Pages: B645-B653

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    Handle: RePEc:inm:ormnsc:v:18:y:1972:i:12:p:b645-b653

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    Cited by:
    1. Chunhachinda, Pornchai & Dandapani, Krishnan & Hamid, Shahid & Prakash, Arun J., 1997. "Portfolio selection and skewness: Evidence from international stock markets," Journal of Banking & Finance, Elsevier, vol. 21(2), pages 143-167, February.
    2. Basso, Antonella & Funari, Stefania, 2001. "A data envelopment analysis approach to measure the mutual fund performance," European Journal of Operational Research, Elsevier, vol. 135(3), pages 477-492, December.
    3. Darolles, Serge & Gourieroux, Christian, 2010. "Conditionally fitted Sharpe performance with an application to hedge fund rating," Journal of Banking & Finance, Elsevier, vol. 34(3), pages 578-593, March.
    4. Prakash, Arun J. & Chang, Chun-Hao & Pactwa, Therese E., 2003. "Selecting a portfolio with skewness: Recent evidence from US, European, and Latin American equity markets," Journal of Banking & Finance, Elsevier, vol. 27(7), pages 1375-1390, July.
    5. Jea, Rong & Lin, Jin-Lung & Su, Chao-Ton, 2005. "Correlation and the time interval in multiple regression models," European Journal of Operational Research, Elsevier, vol. 162(2), pages 433-441, April.
    6. Ken Johnston & John Hatem & Elton Scott, 2013. "A note on the evaluation of long-run investment decisions using the sharpe ratio," Journal of Economics and Finance, Springer, vol. 37(1), pages 150-157, January.
    7. Francis In & Sangbae Kim & Vijaya Marisetty & Robert Faff, 2008. "Analysing the performance of managed funds using the wavelet multiscaling method," Review of Quantitative Finance and Accounting, Springer, vol. 31(1), pages 55-70, July.
    8. Levy, Haim & Schwarz, Gideon, 1997. "Correlation and the time interval over which the variables are measured," Journal of Econometrics, Elsevier, vol. 76(1-2), pages 341-350.
    9. Chaudhury, M. M. & Lee, C. F., 1997. "Functional form of stock return model: Some international evidence," The Quarterly Review of Economics and Finance, Elsevier, vol. 37(1), pages 151-183.

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