Take a position on the following statement: Conventional wisdom says one should measure a manager’s investment...

Take a position on the following statement: Conventional wisdom says one should measure a manager’s investment performance over an entire market cycle. Support your response with arguments from the text. Determine whether or not the universe of similar investment managers overcomes the statistical problems associated with instability of beta or total variability. Support your position.

Expert Solution

Conventional wisdom says one should measure a manager’s investment performance over an entire market cycle.

Yes, this is true.You can see what decisions that managers make in entire cycle in markets.Because many stocks or shares are cyclical in nature and some times these stocks may effect managers performance if it is taken for a limited period..Thats why you should always consider for an entire cycle. For suppose if managers invest in high beta stocks and if the market is bullish his portfolio will perform better. So if you consider for full cycle i.e both bullish and bearish market conditions then you will get to know the true potential of managers performance.

Determine whether or not the universe of similar investment managers overcomes the statistical problems associated with instability of beta or total variability.

The use of universes of managers to evaluate relative investment performance does, to some extent, overcome statistical problems, as long as those manager groups can be made sufficiently homogeneous with respect to style.One more thing is portfolio duration may vary across different managers. Portfolio returns may not be calculated in the same way. So homogenous should be maintained.

jeff jeffy answered 2 years ago

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