Thursday, July 5, 2012

First Principles in Performance & Risk

A first principle is refers to "any axiom, law, or abstraction assumed and regarded as representing the highest possible degree of generalization."

Fields such as philosophy, mathematics, and physics have them.

Does performance and/or risk measurement? I think there are candidates. For example, that time-weighted returns eliminate or reduce the impact of cash flows. Also, that money-weighted returns include the impact of cash flows.

What else? Should we, as an industry, have agreed upon first principles? I think we should. What do you think?

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