Abstract

The Influence of Investor-specific Preferences on Performance Measurement

It has been current practice in measuring the performance of security portfolios to measure the active performance of managed portfolios against investor-specific benchmarks and to split up the active performance into its components timing and selectivity of the portfolio manager. However, this one-step procedure of performance measurement does not take account of the influences and effects of investor- specific preferences, which are co-determinants of anyone portfolio’s overall success. Investor-specific requirements and preferences may be significant in extent and may crucially influence performance levels especially in individual portfolio management. This contribution therefore presents a return/risk-based concept for a two-step procedure of performance measurement and attribution. It allows the total success of managed portfolios to be analysed and ascertained by taking account separately of market, investor and manager-specific influences. The focus of this procedure is on measuring and attributing investor-specific influences. The concept for twostep performance measurement, the methods employed and the fields of application are presented in detail, and its application in practice is demonstrated on the basis of a comprehensive example.