Performance metrics for Spanish investment funds
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uis Ferruz is Full Professor in finance and supervisor of the research group GIECOFIN in the Faculty of Economics and Business Studies at the University of Zaragoza, Spain. Christian Pedersen is Director in Finance and Risk Management in Mercer, Oliver, Wyman. He holds a PhD on Risk Measurement in Finance from Cambridge University. Jose´ L. Sarto is Full Professor in finance in the Faculty of Economics and Business Studies at the University of Zaragoza, Spain.
Practical applications This paper is useful for investors and managers of investment funds since it tries to identify the true performance of these portfolios. The empirical results obtained in the Spanish equity fund market provide evidence for the incorrect performance valuations when classical indexes are considered. These problems are caused by: 1) the asymmetric return distributions; 2) the negative return premia. On this subject, the application of the original measures proposed in this work leads to coherent performance rankings. So, these rankings suppose very useful information for fund investors to value the management quality of each fund and for fund managers to know their relative position with respect to the rest of the market. Abstract
Derivatives Use, Trading & Regulation, Vol. 12 No. 3, 2006, pp. 219–227 r 2006 Palgrave Macmillan Ltd 1357-0927/06 $30.00
The aim of this study is to examine the most appropriate way to capture the true performance of Spanish equity funds, considering that almost all have significantly asymmetric return distributions over the time period studied. We apply alternative risk measures, such as semi-standard deviation and absolute deviation and test if the associated performance measures provide markedly different rankings from the classic indices. We find that one subset of funds analysed displays negative return premia, and make an additional adjustment to the suggested performance metrics. Overall when comparing the rankings, we see
strong evidence that — despite the strong asymmetry in returns — the non-traditional performance metrics do not differ markedly from the traditional measurements. This would point to the Spanish equity market behaving more like more mature and liquid markets, and hence being amenable to the application of classic performance and investment management tools. Derivatives Use, Trading & Regulation (2006) 12, 219–227. doi:10.1057/palgrave.dutr.1850043 Keywords: asymmetric return distributions; Spanish equity funds; performance measures
Derivatives Use, Trading & Regulation Volume 12 Number 3 2006 www.palgrave-journals.com/dutr
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INTRODUCTION AND AIMS Investment funds have been one of the most important recent phenomena in Spanish financial markets. The growth of the assets under management by Spanish funds have been one of the biggest in Europe for the past 15 years, with a compounded annual rate of growth greater than 25 per cent. In all, 250bn euros are currently managed by approximately 2,600 Spanish investing funds. Investment funds are now the third most important investment al
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