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Security Analysis and Portfolio Management Tanima Dutta, Lovely Professional University

Notes Unit 13: Portfolio Performance Evaluation

CONTENTS
Objectives
Introduction

13.1 Methods of Calculating Portfolio Returns
13.2 Determinants of Portfolio Performance
13.3 Market Timing

13.4 Benchmark Portfolios for Performance Evaluation
13.5 Summary
13.6 Keywords
13.7 Self Assessment
13.8 Review Questions

13.9 Further Readings

Objectives

After studying this unit, you will be able to:
Anlyse classification of managed portfolio

State advantages of Managed Portfolio
Discuss methods of computing portfolio return
Define components of investment performance
State problems with risk-adjusted measures
Analyze benchmark Portfolios for Performance Evaluation

Explain risk-adjusted Measure of Performance
Discuss sharpe’s Reward-to-variability Ratio
Describe treynor’s Reward-to-volatility Ratio

Understand treynors versus Sharpe Measures
Discuss Jensen's differential Return Measures
Explain Application of Evaluation Techniques

Introduction

Of late, mutual funds have gained popularity in India since the early 90s. Most individual
investors find it difficult to identify and diversify their investments across different portfolios,
either due to lack of adequate knowledge of investment management principles or because of
lack of skills needed to play actively with the complex system of making quick decisions for
proper handling of their portfolios. As a result, they are simply turning to specialised institutions
like mutual funds. Mutual funds in turn, with their skilled portfolio managers are promising to

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