Benchmarking money manager performance: Issues and evidence

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

Research output: Contribution to journalArticle

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.

Original languageEnglish (US)
Pages (from-to)4553-4599
Number of pages47
JournalReview of Financial Studies
Volume22
Issue number11
DOIs
StatePublished - Nov 1 2009

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ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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