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Kimball's prudence and two-fund separation as determinants of mutual fund performance evaluation

[working paper]

Breuer, Wolfgang; Gürtler, Marc

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Corporate Editor Technische Universität Braunschweig, Department Wirtschaftswissenschaften, Institut für Finanzwirtschaft
Abstract "We consider investors with mean-variance-skewness preferences who aim at selecting one out of F different funds and combining it optimally with the riskless asset and direct stock holdings. Direct stock holdings are either exogenously or endogenously determined. In our theoretical section, we derive and discuss several performance measures for the investor’s decision problems with a central role of Kimball’s (1990) prudence and of several variants of Sharpe and Treynor measures. In our empirical section, we show that the distinction between exogenous and endogenous stock holding is less important than the issue of skewness preferences. The latter are most relevant for fund rankings, when an investor’s skewness preferences are not derived from cubic HARA utility so that the two-fund separation theorem is not valid." [author's abstract]
Classification Financial Planning, Accountancy
Free Keywords investor specific performance measure; performance evaluation; prudence; skewness preferences
Document language English
Publication Year 2005
City Braunschweig
Page/Pages 54 p.
Series IF Working Paper Series, FW17V4
Licence Deposit Licence - No Redistribution, No Modifications
data provider This metadata entry was indexed by the Special Subject Collection Social Sciences, USB Cologne