tag:blogger.com,1999:blog-2568941354104807757.post7570523301853516809..comments2023-10-05T09:07:24.225-04:00Comments on Investment Performance Guy: Standard deviaton: equal- or asset-weightDave Spauldinghttp://www.blogger.com/profile/01777929408680234896noreply@blogger.comBlogger3125tag:blogger.com,1999:blog-2568941354104807757.post-76662825634328037112010-02-19T09:23:43.603-05:002010-02-19T09:23:43.603-05:00I also agree, but I believe the core problem rest ...I also agree, but I believe the core problem rest on the client and not the data provider. If a client wants something, the data provider can't say no. If a client needs something, the data provider still can't say no either. Educating clients to help them understand what the data means is a possible solution, but I feel this always doesn't work the way we expect.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2568941354104807757.post-89746723900688692452010-02-18T13:27:49.355-05:002010-02-18T13:27:49.355-05:00Excellent points, thanks! Yes, if someone is looki...Excellent points, thanks! Yes, if someone is looking at the dispersion number, they want to be able go properly assess it: what possible interpretation or meaning can be associated with an asset weighted version? As for equal weighted composites, both the ICAA and IMCA opposed asset-weighting as it gives greater emphasis to larger clients. Because (at the time) AIMR wanted the number to reflect the performance of a single account, asset-weighting ruled and it will never get put back into the bottle...sorry. But, firms can always show equal-weighted composite returns, too!Dave Spauldinghttps://www.blogger.com/profile/01777929408680234896noreply@blogger.comtag:blogger.com,1999:blog-2568941354104807757.post-57273605152092898342010-02-18T12:38:50.516-05:002010-02-18T12:38:50.516-05:00I believe there is an even better reason to move f...I believe there is an even better reason to move from asset weighted to equal weighted standard deviation: it's a better answer to the right question. Client's ask about dispersion because their question is this: "How likely am I to receive the average return of the composite?" Obviously, if dispersion among the portfolios in the composite is high, then there is a low likelihood that a new account will earn the return of the composite. So the dispersion question is really this: "What was the dispersion around the average ACCOUNT in the composite?" and not "What was the dispersion around the average DOLLAR (Euro, Pound, etc.) in the composite?" It's clear that asset weighting reduces the dispersion in the composite and so it is not a conservative measure of dispersion risk. It favors the manager by minimizing dispersion. <br /><br />Frankly, this argument has also been used for equally weighting RETURN in the composite; alas, this has not met with overwhelming support, as it should have. Perhaps when we get a better understanding of the client's relevant questions, then we will have clarity and consensus around the right measures of risk and return.Stephen Campisi, Intuitive Performance Solutionsnoreply@blogger.com