CML-SML and Sharpe/Treynor/Jensen

[vjoyram]

Hi David,

I remember reading a paragraph about the Sharpe/Treynor and Jensen ratios as well as the CML vs SML but cannot find the notes through all my papers... In addition, I can't remember whether this was an AIM for the exam or just something I read on one of your notes. Could you please point me to the right direction? Many thanks.

 

[David Harper CFA FRM]

Hi vjoyram,

The relevant AIMs are from Chapter 4 of Noel Amenc Portfolio Theory and Performance Analysis):
* Calculate, compare, and evaluate the Treynor measure, the Sharpe measure, and Jensen's alpha.
* Compute and interpret tracking error, the information ratio, and the Sortino ratio.

Among the Investment discipline reading, I highly recommend this assignment as a priority given its high density. Suggest you seek to connect tracking error and info ration with same in Grinold.

These are summarized in Investment notes

And Episode 13 with more detail (PDF slides, too)

Finally, for the CML/SML, I just last week gave screencast briefs. I hope you may find these < 10 min briefs helpful

(can i ask you a quesiton, is the BLOG hard to see/find, I feel like maybe that some of my customers are not even aware i do a daily screencast? Just asking, it's my fault it's not obvious...)

From the blog last week:
CML: http://www.bionicturtle.com/learn/article/capital_market_line_cml_10_min_briefcast/
SML: http://www.bionicturtle.com/learn/article/security_market_line_sml_9_min_briefcast/
RAPMs (e.g., Treynor): http://www.bionicturtle.com/learn/article/risk_adjusted_performance_measures_rapms_10_min_briefcast/
And working XLS, if you like http://www.bionicturtle.com/learn/article/risk_adjusted_performance_measures_rapms_10_min_briefcast/

David

 

[vjoyram]

Many thanks David. Your blog is quite clear and apparent on the main page although I was not aware of a daily screencast... I watched the SML and CML ones indeed but thought for some reasons that they were related to the Market Discipline. These blogs have been very useful.
Regarding your question, (it might only be me) but given the amount of information to digest for the FRM exam, I tend to glance through the different screens and identify keywords that would need deeper attention or clarifications. Maybe a sitemap page could be useful to help see things from 10,000 feet... just a suggestion.

 

[thaihaungo]

Hi David,

I am wonder which one of four above ratios (Sharpe, Treynor, Jensen, Information) is superior? by which measures did the performance valuation is better? Thanks.