Portfolio performance measurement using APM-free kernel models |
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| Affiliation: | 1. Department of Finance, Operations, and Information Systems, Faculty of Business, Brock University, St. Catharines, ON, Canada L2S 3A1;2. John Molson School of Business, Concordia University, Montreal, QC, Canada H3G 1M8;1. School of Finance, Shanghai University of Finance and Economics, China;2. Department of Finance, University of Iowa, United States;3. College of Business Administration, University of Rhode Island, United States;4. Department of Economics & Finance, University of Dayton, United States;1. National Hydrogen Centre, Prolongación Fernando el Santo s/n, 13500, Puertollano, Spain;2. Escuela Superior de Informática, Universidad de Castilla la Mancha, Paseo de la Universidad, 4, Ciudad Real, Spain;3. Escuela de Ingeniería Minera e Industrial de Almadén, Universidad de Castilla-La Mancha, Plaza Manuel Meca S/N, Almadén, Ciudad Real, Spain;4. Departament of Energy and Fuels, School of Mining and Energy Technical University of Madrid (UPM), Rios Rosas, 21, Madrid, Spain;1. Olayan School of Business, American University of Beirut, P.O. Box 11-0236, Riad El Solh, Beirut 1107-2020, Lebanon;2. Department of Mechanical and Industrial Engineering, Ryerson University, 350 Victoria Street, Toronto, Ont. M5B2K3, Canada;1. UTS Business School, University of Technology Sydney, NSW 2007, Australia;2. Department of Economics, University of Leicester, LE17RH, UK |
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| Abstract: | A general asset-pricing framework is used to derive a conditional asset-pricing kernel that accounts efficiently for time variation in expected returns and risk, and is suitable to perform (un)conditional evaluations of passive and dynamic investment strategies. The positive abnormal unconditional performance of Canadian equity mutual funds over the period 1989–1999 becomes negative with conditioning, and is robust to the removal of ex post index mimickers. The reversal in the size-based performance results with limited information conditioning is alleviated somewhat with an expansion of the conditioning set. The performance statistics are weakly sensitive to changes in the level of relative risk aversion of the uninformed investor. Unconditional positive performances based on averages of individual fund performances lose their significance when cross-correlations are accounted for using the block-bootstrap method. Estimates of survivorship bias due to the elimination of funds with shorter lives, which range from 36 to 58 basis points per year, are stable across performance models but differ across groupings by fund objective. |
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