TY - JOUR

T1 - Benchmark-based evaluation of portfolio performance: a characterization

AU - Alekseev, Aleksandr G.

AU - Sokolov, Mikhail V.

PY - 2016

Y1 - 2016

N2 - 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.

AB - 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.

KW - Portfolio performance

KW - Compound annual growth rate

KW - Benchmarking

KW - Index number theory

KW - Portfolio choice under uncertainty

U2 - 10.1007/s10436-016-0286-4

DO - 10.1007/s10436-016-0286-4

M3 - Article

VL - 12

SP - 409

EP - 440

JO - Annals of Finance

JF - Annals of Finance

SN - 1614-2446

IS - 3

ER -