Ratio d’univers

Jean-François Boulier~Romain Verdier, France

Performance measurement in the very competitive asset management industry makes use of selected indices taken as benchmark for the evaluation of the value added by the portfolio manager. For example, the Information Ratio (Sharpe, 1992) divides the excess performance of a fund relative to the selected index by the corresponding tracking error. But the selection of such an index brings some risk of its kind, that one can measure by the tracking errors of one index vis à vis the other possible indices. This article suggest to use instead a measure of the value added by the fund by comparing its performance to all possible portfolios invested in the same universe. This leads to a measure of excess return and risk that lead to a ratio, which we call Universe Ratio.
Date: 2 June - Time: 8:30 to 10:00 - Room: 241
Theme: 9.A. Various topics