Measuring Non-Us. Equity Portfolio Performance

Measuring non-US.

equity portfolio performance

This system breaks out market and stock selection results.

The Journal of Portfolio Management 1985.11.3:73-76. Downloaded from www.iijournals.com by BESSEMER TRUST on 11/08/11. It is illegal to make unauthorized copies of this article, forward to an unauthorized user or to post electronically without Publisher permission.

Gary P. Brinson and Nimrod Fachler

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his - - has two aims. First, we establish paper the correct benchmark index for measuring the performance of non-U.S. equity portfolios. Second, we propose an analytical framework for analyzing and evaluating the portfolio’s performance.

THE CAPITAL INTERNATIONAL INDEXES

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of world capitalization. For the individual markets, the percentage coverage varied from lows of 53% for Australia and 55% for Denmark to a high of 81.4% for the Netherlands.’ Table I examines the representativeness of the national market CIP indexes. Note, in particular, the results for the Netherlands, Switzerland, and France, where the movements of the domestic indexes explain only 74%, 88%, and 90%, respectively, of the movements of the relevant CIP index. The domestic indexes we chose for this analysis were, by our judgment, the most comprehensive and well constructed indexes available. Table I1 shows the results of a regression analysis for 12 markets covered where, in each case, the CIP index return is the dependent variable and the domestic index is the independent variable (the same domestic indexes as in Table I). All the constants are insignificantly different from zero. The betas, however, show some significant deviations from 1.0. That is the case for Japan, Australia, Italy, Belgium, and Canada, where the betas are 1.168,1.076,0.956,1.072, and 1.052, respectively. In the Japanese case, the high beta of the CIP index versus the domestic index can be a significant factor, as the Japanese market will be the largest single-country holding in most...