Benchmarking is a universal practice in portfolio management and is well-studied in the optimal portfolio selection literature. This paper derives axiomatic foundations of the relative return, which underlies a benchmark-based evaluation of portfolio performance. We show that the existence of a benchmark naturally arises from a few basic axioms and is tightly linked to the economic theory. Our method relies on the use of both axiomatic and economic approaches to index number theory. We also analyze the problem of optimal portfolio selection under complete uncertainty about a future price system, where the objective function is the relative return.
Original languageEnglish
Pages (from-to)409-440
JournalAnnals of Finance
Volume12
Issue number3
DOIs
StatePublished - 2016
Externally publishedYes

    Research areas

  • Portfolio performance, Compound annual growth rate, Benchmarking, Index number theory, Portfolio choice under uncertainty

ID: 7626116