Skip to main content

Main menu

  • Home
  • Current Issue
  • Past Issues
  • Videos
  • Submit an article
  • More
    • About JOI
    • Editorial Board
    • Published Ahead of Print (PAP)
  • IPR Logo
  • About Us
  • Journals
  • Publish
  • Advertise
  • Videos
  • Webinars
  • More
    • Awards
    • Article Licensing
    • Academic Use
  • Follow IIJ on LinkedIn
  • Follow IIJ on Twitter

User menu

  • Sample our Content
  • Request a Demo
  • Log in

Search

  • ADVANCED SEARCH: Discover more content by journal, author or time frame
The Journal of Investing
  • IPR Logo
  • About Us
  • Journals
  • Publish
  • Advertise
  • Videos
  • Webinars
  • More
    • Awards
    • Article Licensing
    • Academic Use
  • Sample our Content
  • Request a Demo
  • Log in
The Journal of Investing

The Journal of Investing

ADVANCED SEARCH: Discover more content by journal, author or time frame

  • Home
  • Current Issue
  • Past Issues
  • Videos
  • Submit an article
  • More
    • About JOI
    • Editorial Board
    • Published Ahead of Print (PAP)
  • Follow IIJ on LinkedIn
  • Follow IIJ on Twitter

Are Relative Performance Measures Useless?

Paul Kaplan and Maciej Kowara
The Journal of Investing June 2019, 28 (4) 83-93; DOI: https://doi.org/10.3905/joi.2019.28.4.083
Paul Kaplan
is the director of research at Morningstar Canada in Toronto, ON, Canada
  • Find this author on Google Scholar
  • Find this author on PubMed
  • Search for this author on this site
Maciej Kowara
is an associate director in Active Funds Research at Morningstar Inc. in Chicago, IL
  • Find this author on Google Scholar
  • Find this author on PubMed
  • Search for this author on this site
  • Article
  • Info & Metrics
  • PDF (Subscribers Only)
Loading

Click to login and read the full article.

Don’t have access? Click here to request a demo 

Alternatively, Call a member of the team to discuss membership options
US and Overseas: +1 646-931-9045
UK: 0207 139 1600

Abstract

Each year, hundreds of billions of dollars are moved from one investment manager to another. Frequently, these decisions are based on relative performance measurements over periods of 5 to 10 years. The authors use a Monte Carlo model to test the logic of such an approach by constructing managers that have (1) positive skill, (2) no skill, and (3) negative skill versus their benchmarks. The authors show that the typical positive-skill manager suffers a longest underperformance period (defined as the longest month-to-month period during which the returns for the simulated fund trail those of the benchmark) of approximately 10 years during 15-year simulations. Conversely, managers with negative skill enjoy longest outperformance periods of a similar length. The authors also simulate a series of very skilled managers over a 100-year period and show that, on average, there is a 25-year period in which they underperformed. These findings are confirmed by empirical analysis of the realized performance of 5,500 actively managed funds with 15-year track records from the United States, Canada, the United Kingdom, the Eurozone, Europe ex-euro, and Developed Asia ex-Japan markets. The authors conclude that the standard time frames for evaluating the relative performance of investment managers are insufficient to evaluate the skill of a manager with any degree of confidence. The authors cannot state with confidence that relative performance measures are useless, but the authors can state that they are so when they are employed in the customary fashion.

TOPICS: Manager selection, performance measurement, emerging, simulations

  • © 2019 Pageant Media Ltd
View Full Text

Don’t have access? Click here to request a demo

Alternatively, Call a member of the team to discuss membership options

US and Overseas: +1 646-931-9045

UK: 0207 139 1600

Log in using your username and password

Forgot your user name or password?
PreviousNext
Back to top

Explore our content to discover more relevant research

  • By topic
  • Across journals
  • From the experts
  • Monthly highlights
  • Special collections

In this issue

The Journal of Investing: 28 (4)
The Journal of Investing
Vol. 28, Issue 4
June 2019
  • Table of Contents
  • Index by author
  • Complete Issue (PDF)
Print
Download PDF
Article Alerts
Sign In to Email Alerts with your Email Address
Email Article

Thank you for your interest in spreading the word on The Journal of Investing.

NOTE: We only request your email address so that the person you are recommending the page to knows that you wanted them to see it, and that it is not junk mail. We do not capture any email address.

Enter multiple addresses on separate lines or separate them with commas.
Are Relative Performance Measures Useless?
(Your Name) has sent you a message from The Journal of Investing
(Your Name) thought you would like to see the The Journal of Investing web site.
CAPTCHA
This question is for testing whether or not you are a human visitor and to prevent automated spam submissions.
Citation Tools
Are Relative Performance Measures Useless?
Paul Kaplan, Maciej Kowara
The Journal of Investing May 2019, 28 (4) 83-93; DOI: 10.3905/joi.2019.28.4.083

Citation Manager Formats

  • BibTeX
  • Bookends
  • EasyBib
  • EndNote (tagged)
  • EndNote 8 (xml)
  • Medlars
  • Mendeley
  • Papers
  • RefWorks Tagged
  • Ref Manager
  • RIS
  • Zotero
Save To My Folders
Share
Are Relative Performance Measures Useless?
Paul Kaplan, Maciej Kowara
The Journal of Investing May 2019, 28 (4) 83-93; DOI: 10.3905/joi.2019.28.4.083
del.icio.us logo Digg logo Reddit logo Twitter logo Facebook logo Google logo LinkedIn logo Mendeley logo
Tweet Widget Facebook Like LinkedIn logo

Jump to section

  • Article
    • Abstract
    • DEFINITIONS
    • MONTE CARLO SIMULATION
    • AN EMPIRICAL STUDY
    • CONCLUSIONS
    • ACKNOWLEDGMENT
    • ENDNOTES
    • REFERENCE
  • Info & Metrics
  • PDF (Subscribers Only)
  • PDF (Subscribers Only)

Similar Articles

Cited By...

  • Patience with Active Performance Cyclicality: Its Harder Than You Think
  • Google Scholar
LONDON
One London Wall, London, EC2Y 5EA
United Kingdom
+44 207 139 1600
 
NEW YORK
41 Madison Avenue, New York, NY 10010
USA
+1 646 931 9045
pm-research@pageantmedia.com
 

Stay Connected

  • Follow IIJ on LinkedIn
  • Follow IIJ on Twitter

MORE FROM PMR

  • Home
  • Awards
  • Investment Guides
  • Videos
  • About PMR

INFORMATION FOR

  • Academics
  • Agents
  • Authors
  • Content Usage Terms

GET INVOLVED

  • Advertise
  • Publish
  • Article Licensing
  • Contact Us
  • Subscribe Now
  • Log In
  • Update your profile
  • Give us your feedback

© 2022 Pageant Media Ltd | All Rights Reserved | ISSN: 1068-0896 | E-ISSN: 2168-8613

  • Site Map
  • Terms & Conditions
  • Cookies
  • Privacy Policy