One thing that is often overlooked is that William F. Sharpe, PhD, in his paper that introduced the now eponymously named “Sharpe ratio,” referred to his measure as “reward to variability.” He contrasted this with Jack Treynor’s earlier published method, which he labeled “reward to volatility.” The only difference between the measures was what they chose […]
Read MoreWe just published our monthly newsletter (a few days late, but better-late-than-never, right?). And already we’ve gotten comments in on two things: #1 is our puzzle, but a close #2 is my commentary on annualized standard deviation. And, as I point out, the recent source for this discussion is a question that came up at last […]
Read MoreThe GIPS(R) standards require compliant firms to include a measure of dispersion for each year in which they have six or more accounts present for the full 12 months. But, which return should they use, gross-of-fee or net-of-fee? What about for the 36-month, ex post, annualized standard deviation? Gross or net-of-fee? The ideal return to […]
Read More dispersionLinking monthly standard deviation has its root within the AIMR-PPS One advantage to being a bit older than most folks in performance measurement is that I have been exposed to a lot of ideas, and quite a bit of history. This includes the predecessor standard to GIPS®) the AIMR Performance Presentation Standards or AIMR-PPS®. Some […]
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Last night, my hometown team, the Los Angeles Dodgers, was defeated by the St. Louis Cardinals in the National League Championship series. The Cardinals will go on to the World Series for a chance at what could be their 20th world championship… while the Dodgers get to start their winter vacations. After the game, legendary […]
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Last week I taught our CIPM prep classes for the Principles and Expert Levels, and the commonly asked question about the fastest way to do standard deviation came up. I will take this opportunity to refer to an old blog post (found here) that covered how to this using the statistics worksheet on the TI […]
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It has actually become apparent to me during the course of conducting GIPS verifications that there is some confusion as to when internal dispersion and external dispersion must be shown. It occurred to me that CIPM candidates may have the same confusion. Internal dispersion is a required presentation element of GIPS compliant composite presentations, as […]
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I participated in a panel discussion last week for the New York Society of Security Analysts (NYSSA). Questions arose regarding the use of standard deviation with GIPS(R) (Global Investment Performance Standards). I used my standard graphic, which distinguishes between this statistic being used as a risk measure (a longitudinal or across time view, looking at […]
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The Global Investment Performance Standards (GIPS(R)) now require compliant firms to include the 3-year, annualized standard deviation for the composite and its benchmark. And while this was a somewhat controversial move, it’s here, so we live with it. But, why stop there? For example, while conducting a recent GIPS verification for Reams Asset Management, a […]
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Confusion abounds when it comes to standard deviation. Some of the issues include: Equal-weighted or asset-weighted? Divide by “n” or “n-1”? Is it a measure of variability, volatility, or dispersion? Is it a measure of risk? What’s the best way to measure relative to the composite’s average return? I’ll be brief, but promise to expound […]
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