PPE

Question 1

time-weighted average

Answer 1

An average (often a geometric average) of the period-by-period holding-period returns of an investment.

Question 2

dollar-weighted rate of return

Answer 2

The internal rate of return on an investment.

Question 3

comparison universe

Answer 3

The set of money managers employ- ing similar investment styles, used for assessing the relative performance of a portfolio manager.

Question 4

Sharpe ratio

Answer 4

Reward-to-volatility ratio; ratio of excess return to portfolio standard deviation.

Question 5

Treynor’s measure

Answer 5

Ratio of excess return to beta.

Question 6

Jensen’s alpha

Answer 6

The alpha of an investment.

Question 7

information ratio

Answer 7

Ratio of alpha to the standard deviation of diversifiable risk.

Question 8

survivorship bias

Answer 8

Bias in the average returns of a sample of funds induced by excluding past returns on funds that left the sample because they happened to be unsuccessful.

Question 9

market timing

Answer 9

Asset allocation in which the investment in the market is increased if one forecasts that the market will outperform T-bills.

Question 10

bogey

Answer 10

The return an investment manager is compared to for performance evaluation.