Grading the performance of market indicators with utility benchmarks selected from Footsie: a 2000 case study

The suitable choice of a benchmark portfolio is a critical problem prior to using the information ratio, as the performance ranking of funds depends on this choice. In this paper, a method to optimize benchmark selection taking account of the investor's preferences is proposed and applied to a case study of performance for 29 market indicators on stock exchanges throughout the world. The method that relies on recent results in optimization theory requires defining the opportunity set to select the benchmarks, this set being Footsie in the case study. The computational process and numerical results are presented through tables and figures, the accuracy of the method being also numerically tested.