Tag Archives: benchmark

Investment performance: measurement versus calculation

I recently had a frustrating — for both parties — conversation involving performance measurement. I said “measurement”.  My dialogist heard “calculation” but wanted “measurement”.  We went dizzy in the chase. Calculation and Measurement What’s the difference? A calculation is what computers do. A measurement is an assessment.  It is a comparison with an ulterior motive. I’m … Continue reading

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How to add a benchmark to a variance matrix

There is a good way and a bad way to add a benchmark to a variance matrix that will be used for optimization and similar operations.  Our examination sheds a little light on the process of variance matrix estimation in this realm. Role of benchmarks Investing Benchmarks are common in investment management.  It’s my opinion … Continue reading

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Low volatility investing and benchmarks

The focus on tracking error rules out a low volatility strategy. Simply put, most money managers are focused on outperforming their benchmarks without adding risk. And because risk is measured on a relative basis, a portfolio that moves up and down less than its benchmark is perceived as more risky on a relative basis because … Continue reading

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Some new ideas in financial mathematics

Financial mathematicians have built an increasingly elaborate structure around the idea of “the market” …  In this article, I intend to challenge some of these foundational concepts with the intention of destabilizing the intellectual structure that has been erected on top of them and to demonstrate how a randomly generated portfolio can beat “the market,” … Continue reading

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The benchmark gambit

What do we lose when we use a benchmark? Simple Make everything as simple as possible, but not simpler. – Albert Einstein Everything should be made as simple as possible, but not simpler. – Albert Einstein Everything must be made as simple as possible. But not simpler. – Albert Einstein Everything should be as simple … Continue reading

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Benchmarking low-volatilty strategies

Low volatility investing and performance measurement — my favorite topic scheme — how could I resist? The paper The paper is “Benchmarking Low-Volatility Strategies” by David Blitz and Pim van Vliet. The problem They claim that using a low-volatility index as a benchmark for a low-volatility strategy is not a good idea because: All low-volatility … Continue reading

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What is a good benchmark?

One suggestion is that benchmarks should be: transparent & unambiguous frame-able & customize-able appropriate with full coverage investable The source of this suggestion is Setting the Benchmark: Spotlight on Private Equity. This was discussed by All About Alpha.  The paper considers indices and peer groups as benchmarks.  They did not consider random portfolios. Let’s look … Continue reading

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