JENSEN The University of Rochester THEMAIN PURPOSE of this study is to develop a model for evaluating the performance of portfolios of risky assets. The model begins from the Sharpe-Lintner theory of capital-asset prices, but allows explicitly for the effects of differential degrees of âriskâ on the returns of portfolios-a problem which has never been satisfactorily solved. The Sharpe-Lintner results (originally derived in the context of a singleperiod model under the assumption of identical investof horizons) are extended to a multi-period world. I n this model investorsâ horizons may be of different lengths and assets may be traded continuously. I n addition, the Sharpe-Lintner ex ante model is extended to include ex post relationships. The resulting model expresses the expected returns on a security (or portfolio) as a function of its level of systematic risk, the risk-free return, and the actual realized returns (instead of the expected future return) on the âmarket portfolioâ over any holding period. Given these results, a measure of portfolio âperformanceâ (which measures only a managerâs ability to forecast security prices) is defined as the difference between the actual returns on a portfolio in any particular holding period and the expected returns on that
The Journal of Finance – Wiley
Published: Dec 1, 1969
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