Alpha Management

Résumé du document

For each individual manager, we have estimated the risk-adjusted performance. We have measured the returns for each manager and the risks taken by each of them owing to volatility, skewness and kurtosis, VaR and downside risk. Based on the above analysis we can see that three of the five managers (B, C and E) have realized higher returns (4.44% in average vs. -4.83%) with lower risk (21.68% in average vs. 25.78%) than the commercial index. The other two (A and D) have registered lower risk (23.80% vs. 25.78%) but also worst returns (-8.01% in average vs. -4.83%). We can link the performance and the risk thanks to different ratios.

Extraits

[...] The second peer-group has a worst Sharpe Ratio 0.4623 in average vs. - 0.3036 Information Ratio 19.09 and Treynor Ratio in average vs. - 18.72 Thus, we can conclude that the managers A & D have taken over the period more risk for a poor performance comparing to the managers C & E B 4,00% C E N R 0,00% U T E R - Index D A -10,00% VOLATILITY However, the volatility is a good proxy of risk only if the distribution of the returns is normal whereas there is large empirical evidence that returns are not normally distributed. [...]

[...] - and - 3.82 than the other two (managers A and and than the index. As a result, it is obvious that the managers C and E have a better return to VaR ratio ( 0.6733 in average vs. - 4.6288 ) than the other two, who underperform also the index 3.0697 ) Manager E Manager D Manager C Manager B Modified VaR Normal VaR Historical CVaR Historical VaR Manager A Commercial Index - It is necessary to take into account other measures of risk like the drawdown or the downside risk. [...]

[...] Alpha Management 2. Manager selection decisions Alpha management Introduction In the first part we have studied the beta management, better known as indexing. By opposition to passive (or beta) management, there is the active management also called alpha management. This consists on the use of analytical research, forecasts, own judgement and experience to take investment decisions on what securities to buy, to sell or to hold. Thus, the managers who believe in active management believe that it is possible to profit from the stock market through any numbers of strategies that aim to identify mispriced securities. [...]

[...] The best managers are A & D for skewness and B & E for kurtosis Historical Skewness Historical Excess Kurtosis Commercial Index -0,50 Manager A Manager B Manager C Manager D Manager E Moreover, we can measure the risk as the maximum expected loss with the Value at Risk or the Computed Value at Risk. The managers C and have higher historical in average vs. - and - 2.62 normal in average vs. - and - 2.64 and modified VaR in average vs. - and - 2.55 but also historical CVaR vs. [...]

[...] The results obtained thanks to our analysis are synthesized in the table below: Indicator Historical annualized return Historical annualized volatility Historical Skewness Historical Excess Kurtosis Historical VaR Historical CVaR Normal VaR Modified VaR Max drawdown Sharpe Ratio (rf = Information Ratio Treynor Ratio Sortino Ratio Kalman ratio Return to VaR ratio -18,72% -30,28% -3,0697 Index - - -0,3036 Manager A - - -0,4844 -21,20% -36,08% -47,37% -4,8544 Manager B - - Manager C - - Manager D - -0,4401 -16,98% -31,15% -43,04% -4,4032 Manager E - - Based on these analyses, we can notice that three of the five managers C and have realized higher returns ( in average vs. - 4.83 with lower risk ( in average vs than the commercial index. The other two and have registered lower risk ( vs but also worst returns in average vs. - 4.83 We can link the performance and the risk thanks to different ratios. [...]