Ranking Portfolio Performance: An Application of a Joint Means and Variances Equality Test

Journal of Applied Economics ( web site) 1999 II97-130
(RePEc:cem:jaecon:v:2:y:1999:n:1:p:97-130)

Abstract:

We propose a new procedure to rank portfolio performance. Given a set of N portfolios, we use statistical tests of dominance which produce direct mean-variance comparisons between any two portfolios in the set. These tests yield an NxN matrix of pairwise comparisons. A ranking function maps the elements of the comparison matrix into a numerical ranking. To illustrate the procedure we use a set of 133 mutual funds, including the S&P500 index and the CRSP equal and value weighted indexes. We explore the empirical and theoretical relationships between our ranking procedure and the Treynor, Sharpe and Jensen performance measures. In general, the new procedure?s ranking is relatively robust, does not allow for gaming and can be performed with small samples.

Pages: 97-130
Volume: II
Month: May
Year: 1999

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