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Benchmarking Money Manager Performance: Issues and Evidence

Author

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  • Louis K. C. Chan
  • Stephen G. Dimmock
  • Josef Lakonishok

Abstract

Academic and practitioner research evaluates portfolio performance using size and value/growth attributes or factors. We assess the merits of popular evaluation procedures based on matched-characteristic benchmark portfolios or time-series return regressions by applying them to a sample of active money managers and passive indexes. Estimated abnormal returns display large variation across approaches. The benchmarks typically used in academic research--attribute-matched portfolios from independent sorts, the three-factor time-series model, and cross-sectional regressions of returns on stock characteristics--track returns poorly. Some simple alterations improve the performance of these methods. The Author 2009. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oxfordjournals.org., Oxford University Press.

Suggested Citation

  • Louis K. C. Chan & Stephen G. Dimmock & Josef Lakonishok, 2009. "Benchmarking Money Manager Performance: Issues and Evidence," The Review of Financial Studies, Society for Financial Studies, vol. 22(11), pages 4553-4599, November.
    • Handle: RePEc:oup:rfinst:v:22:y:2009:i:11:p:4553-4599
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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