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Methods for Portfolio Performance Evaluation

In: Encyclopedia of Finance

Author

Listed:
  • Lalith P. Samarakoon

    (University of St. Thomas)

  • Tanweer Hasan

    (Independent University of Bangladesh)

Abstract

The portfolio performance evaluation involves the determination of how a managed portfolio has performed relative to some comparison benchmark. Performance evaluation methods generally fall into two categories, namely conventional and risk-adjusted methods. The most widely used conventional methods include benchmark comparison and style comparison. The risk-adjusted methods adjust returns in order to take account of differences in risk levels between the managed portfolio and the benchmark portfolio. The major such methods are the Sharpe ratio, Treynor ratio, Jensen’s alpha, Modigliani and Modigliani, and Treynor Squared. The risk-adjusted methods are preferred to the conventional methods.

Suggested Citation

  • Lalith P. Samarakoon & Tanweer Hasan, 2022. "Methods for Portfolio Performance Evaluation," Springer Books, in: Cheng-Few Lee & Alice C. Lee (ed.), Encyclopedia of Finance, edition 0, chapter 35, pages 983-990, Springer.
    • Handle: RePEc:spr:sprchp:978-3-030-91231-4_35
    DOI: 10.1007/978-3-030-91231-4_35
    as

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