How Stable are the Major Performance Measures?

In this paper, the authors compare three usual performance measures of actively managed portfolios: Jensen’s Alpha, the Information Ratio (IR), and the newly proposed Generalized Treynor Ratio (GTR) introduced by Hübner (2005). They focus on model specification, sensitivity, and persistence for a large sample of mutual funds from January 1996 to December 2006. Their results reveal that fund classification made with the GTR displays a higher stability while the IR exhibits a greater capacity to reveal persistence in performance. The value of alpha is clearly contingent on model specifications and thus needs to be considered with greater caution to perform ranking of portfolio managers.