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Portfolio performance gauging in discrete time using a Luenberger productivity indicator

  • Brandouy, Olivier
  • Briec, Walter
  • Kerstens, Kristiaan
  • Van de Woestyne, Ignace

This paper proposes a pragmatic, discrete time indicator to gauge the performance of portfolios over time. Integrating the shortage function (Luenberger, 1995) into a Luenberger portfolio productivity indicator (Chambers, 2002), this study estimates the changes in the relative positions of portfolios with respect to the traditional Markowitz mean-variance efficient frontier, as well as the eventual shifts of this frontier over time. Based on the analysis of local changes relative to these mean-variance and higher moment (in casu, mean-variance-skewness and mean-variance-skewness-kurtosis) frontiers, this methodology allows to neatly separate between on the one hand performance changes due to portfolio strategies and on the other hand performance changes due to the market evolution. This methodology is empirically illustrated using a mimicking portfolio approach ([Fama and French, 1996] and [Fama and French, 1997]) using US monthly data from January 1931 to August 2007.

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Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 34 (2010)
Issue (Month): 8 (August)
Pages: 1899-1910

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Handle: RePEc:eee:jbfina:v:34:y:2010:i:8:p:1899-1910
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