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Performance evaluation, portfolio selection, and HARA utility

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  • Breuer, Wolfgang
  • Gürtler, Marc
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    Abstract

    Our main goal is the generalization of the approach of Jobson and Korkie(1984) for funds performance evaluation. Therefore, we consider the portfolio selection problem of an investor who faces short sales restrictions when choosing among F different investment funds and assume the investor's utility function to be of the HARA type. We develop a performance measure and discuss its relationships to Treynor(1965), Sharpe(1966), Jensen(1968), Prakash and Bear(1986), and Grinblatt and Titman(1989). Particular attention is given to the special case of cubic utility implying skewness preferences. Our findings are illustrated by an empirical example. --

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    File URL: http://econstor.eu/bitstream/10419/55252/1/684764849.pdf
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    Bibliographic Info

    Paper provided by Technische Universität Braunschweig, Institute of Finance in its series Working Papers with number FW01V4.

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    Date of creation: 2002
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    Handle: RePEc:zbw:tbsifw:fw01v4

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    Web page: http://www.fiwi.tu-bs.de/
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    Related research

    Keywords: HARA utility; performance evaluation; portfolio selection; skewness;

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    1. Cass, David & Stiglitz, Joseph E., 1970. "The structure of investor preferences and asset returns, and separability in portfolio allocation: A contribution to the pure theory of mutual funds," Journal of Economic Theory, Elsevier, vol. 2(2), pages 122-160, June.
    2. Kroll, Yoram & Levy, Haim & Markowitz, Harry M, 1984. " Mean-Variance versus Direct Utility Maximization," Journal of Finance, American Finance Association, vol. 39(1), pages 47-61, March.
    3. Prakash, Arun J & Bear, Robert M, 1986. "A Simplifying Performance Measure Recognizing Skewness," The Financial Review, Eastern Finance Association, vol. 21(1), pages 135-44, February.
    4. William F. Sharpe, 1965. "Mutual Fund Performance," The Journal of Business, University of Chicago Press, vol. 39, pages 119.
    5. 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.
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