When Portfolio Performance Is Measured,what Type of Benchmark May Be

question 28

Essay

When portfolio performance is measured,what type of benchmark may be used? Explain what Roll meant by benchmark error.Draw a graph that shows how market proxies might produce betas that have no relation to expected returns.Briefly discuss the graph.

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Definitions:

Seismic Station

A facility equipped with seismographs and other instruments to detect and record earthquakes and other ground vibrations.

Epicenter

The point on the Earth's surface directly above the focus of an earthquake, where the seismic waves are felt most strongly.

Seismograms

The recorded output of a seismograph, which shows the motion of the ground during an earthquake or other seismic event.

Nomogram

A graphical calculating device, a two-dimensional diagram designed to allow the approximate graphical computation of a function.