A strategy-proof test of portfolio returns
Traditional methods for analyzing portfolio returns often rely on multifactor risk assessment, and tests of significance are typically based on variants of the t-test.� This approach has serious limitations when analyzing the returns from dynamically traded portfolios that include derivative positions, because standard tests of significance can be 'gamed' using options trading strategies.� To deal with this problem we propose a test that assumes nothing about the structure of returns except that they form a martingale difference.� Although the test is conservative and corrects for unrealized tail risk, the loss in power is small at high levels of significance.
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Volume (Year): 12 (2012)
Issue (Month): 5 (March)
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- Dean P. Foster & H. Peyton Young, 2010. "Gaming Performance Fees By Portfolio Managers," The Quarterly Journal of Economics, Oxford University Press, vol. 125(4), pages 1435-1458.
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