The Conditional Performance of UK Property Funds
Stephen Lee
Working Papers in Land Management and Development 03/99
pp.16
Abstract
The evaluation of investment fund performance has been one of the main
developments of modern portfolio theory. Most studies employ the
technique developed by Jensen (1968) that compares a particular fund's
returns to a benchmark portfolio of equal risk. However, the standard measures
of fund manager performance are known to suffer from a number of problems
in practice. In particular previous studies implicitly assume that
the risk level of the portfolio is stationary through the evaluation period.
That is unconditional measures of performance do not account for the fact
that risk and expected returns may vary with the state of the economy.
Therefore many of the problems encountered in previous performance studies
reflect the inability of traditional measures to handle the dynamic behaviour
of returns. As a consequence Ferson and Schadt (1996) suggest an
approach to performance evaluation called conditional performance evaluation
which is designed to address this problem. This paper utilises such
a conditional measure of performance on a sample of 27 UK property funds,
over the period 1987-1998. The results of which suggest that once
the time varying nature of the funds beta is corrected for, by the addition
of the market indicators, the average fund performance show an improvement
over that of the traditional methods of analysis.
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