On the Jensen Measure and Marginal Improvements in Portfolio Performance: A Note

John David Jobson · Bob Korkie

42 citations0/0 files storedThe Journal of Finance

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Financial Markets and Investment Strategies Financial Risk and Volatility Modeling Risk and Portfolio Optimization

Abstract

ABSTRACT The marginal performance contribution made by new assets in a portfolio is identified. The maximum change in a portfolio's Sharpe performance from the addition of new assets is a simple function of a generalized Jensen index and the unexplained covariances from a multivariate market model. Deviations from a higher dimension market line may be used to rank the desirability of asset additions to an existing portfolio. Statistical tests for the equality of the performance contributions by new assets is possible.

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1964CAPITAL ASSET PRICES: A THEORY OF MARKET EQUILIBRIUM UNDER CONDITIONS OF RISK*1952PORTFOLIO SELECTION*1968THE PERFORMANCE OF MUTUAL FUNDS IN THE PERIOD 1945–1964 1966Mutual Fund Performance 1977A critique of the asset pricing theory's tests Part I: On past and potential testability of the theory 1972An Analytic Derivation of the Efficient Portfolio Frontier 1982Potential performance and tests of portfolio efficiency 1977THE CAPITAL ASSET PRICING MODEL (CAPM), SHORT‐SALE RESTRICTIONS AND RELATED ISSUES

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