Publication Type
Working Paper
Version
publishedVersion
Publication Date
12-2024
Abstract
The authors highlight the shortcomings of commonly used performance graphs in assessing and comparing investment returns. This paper's main conceptual contribution is the introduction of Universal Return (UR) - a visual method to evaluate and rank investment strategies that challenges the traditional focus on raw performance statistics. The authors argue that the ranking of investment performance when viewed from a pool of investors over different entry time is more important than its overall absolute returns, as it better aligns investment analysis with the needs of investors, who are primarily concerned with identifying currently successful strategies or managers rather than dwelling on past performance. UR is applied to the problem of factor timing and selection, and it is shown to outperform other timing strategies. The UR-based approach also exhibits robustness to transaction costs, suggesting its effectiveness in capturing genuine shifts in factor performance dynamics.
Discipline
Finance | Finance and Financial Management
Research Areas
Finance
Areas of Excellence
Digital transformation
First Page
1
Last Page
22
Identifier
10.2139/ssrn.4975565
Publisher
Institutional Investor Inc
Citation
NEO, Poh Ling; TEE, Chyng Wen; and KERKHOF, Jeroen.
Universal return and factor timing. (2024). 1-22.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/7648
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.2139/ssrn.4975565
Comments
Journal of Portfolio Management