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Benchmark-based evaluation of portfolio performance: a characterization

Listed author(s):
  • Aleksandr G. Alekseev

    ()

    (Georgia State University)

  • Mikhail V. Sokolov

    ()

    (European University at St. Petersburg
    St. Petersburg State University
    St. Petersburg Institute for Economics and Mathematics RAS)

Abstract Benchmarking is a universal practice in portfolio management and is well-studied in the optimal portfolio selection literature. This paper derives axiomatic foundations of the relative return, which underlies a benchmark-based evaluation of portfolio performance. We show that the existence of a benchmark naturally arises from a few basic axioms and is tightly linked to the economic theory. Our method relies on the use of both axiomatic and economic approaches to index number theory. We also analyze the problem of optimal portfolio selection under complete uncertainty about a future price system, where the objective function is the relative return.

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File URL: http://link.springer.com/10.1007/s10436-016-0286-4
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Article provided by Springer in its journal Annals of Finance.

Volume (Year): 12 (2016)
Issue (Month): 3 (December)
Pages: 409-440

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Handle: RePEc:kap:annfin:v:12:y:2016:i:3:d:10.1007_s10436-016-0286-4
DOI: 10.1007/s10436-016-0286-4
Contact details of provider: Web page: http://www.springer.com

Order Information: Web: http://www.springer.com/finance/journal/10436/PS2

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  1. Abel, Andrew B, 1990. "Asset Prices under Habit Formation and Catching Up with the Joneses," American Economic Review, American Economic Association, vol. 80(2), pages 38-42, May.
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