Comments on: Academic study: Morningstar ratings have “unintended consequence” of being “manipulation proof” http://allaboutalpha.com/blog/2008/03/02/academic-study-morningstar-ratings-have-unintended-consequence-of-being-manipulation-proof/ Hedge funds, portable alpha, 130/30 and alpha-centric investing Wed, 10 Mar 2010 21:44:24 +0000 http://wordpress.org/?v=abc hourly 1 By: allaboutalpha.com: AllAboutAlpha.com http://allaboutalpha.com/blog/2008/03/02/academic-study-morningstar-ratings-have-unintended-consequence-of-being-manipulation-proof/comment-page-1/#comment-95444 allaboutalpha.com: AllAboutAlpha.com Fri, 04 Apr 2008 13:01:56 +0000 http://allaboutalpha.com/blog/2008/03/02/academic-study-morningstar-ratings-have-unintended-consequence-of-being-manipulation-proof/#comment-95444 [...] Subscribers to our monthly email update “Alpha Mail” will notice that one of the top 10 most popular postings last month was one on a research paper by William Goetzmann of Yale University that explores ways that investment managers can potentially “game” their compensation system to generate illusionary alpha. [...] [...] Subscribers to our monthly email update “Alpha Mail” will notice that one of the top 10 most popular postings last month was one on a research paper by William Goetzmann of Yale University that explores ways that investment managers can potentially “game” their compensation system to generate illusionary alpha. [...]

]]> By: Alea | #Links http://allaboutalpha.com/blog/2008/03/02/academic-study-morningstar-ratings-have-unintended-consequence-of-being-manipulation-proof/comment-page-1/#comment-88414 Alea | #Links Mon, 03 Mar 2008 19:30:48 +0000 http://allaboutalpha.com/blog/2008/03/02/academic-study-morningstar-ratings-have-unintended-consequence-of-being-manipulation-proof/#comment-88414 [...] Morningstar ratings have “unintended consequence” : “manipulation proof” [...] [...] Morningstar ratings have “unintended consequence” : “manipulation proof” [...]

]]> By: Walt French http://allaboutalpha.com/blog/2008/03/02/academic-study-morningstar-ratings-have-unintended-consequence-of-being-manipulation-proof/comment-page-1/#comment-88403 Walt French Mon, 03 Mar 2008 18:42:46 +0000 http://allaboutalpha.com/blog/2008/03/02/academic-study-morningstar-ratings-have-unintended-consequence-of-being-manipulation-proof/#comment-88403 <I>Of course, this requires that the manager knows that market returns will revert to the mean.</I> Actually, not. It's merely a way to lock in a good score achieved by good luck (about 50% of the time) and to improve the score for half of the other half of the time that bad performance happens to be followed by better. There's no real value-added here: it does NOT depend on actually doing the investor any favors and so is a pure gaming of the measure. Doubling down could also quicken your demise at the hands of those who don't trust the RAR, while quitting while you're ahead can be detected and shunned, too. Of course, this requires that the manager knows that market returns will revert to the mean.

Actually, not. It’s merely a way to lock in a good score achieved by good luck (about 50% of the time) and to improve the score for half of the other half of the time that bad performance happens to be followed by better.

There’s no real value-added here: it does NOT depend on actually doing the investor any favors and so is a pure gaming of the measure. Doubling down could also quicken your demise at the hands of those who don’t trust the RAR, while quitting while you’re ahead can be detected and shunned, too.

]]> By: Monday links: intellectual flexibility « Abnormal Returns http://allaboutalpha.com/blog/2008/03/02/academic-study-morningstar-ratings-have-unintended-consequence-of-being-manipulation-proof/comment-page-1/#comment-88388 Monday links: intellectual flexibility « Abnormal Returns Mon, 03 Mar 2008 17:43:19 +0000 http://allaboutalpha.com/blog/2008/03/02/academic-study-morningstar-ratings-have-unintended-consequence-of-being-manipulation-proof/#comment-88388 [...] Hedge fund managers love benchmarks they can game. (All About Alpha) [...] [...] Hedge fund managers love benchmarks they can game. (All About Alpha) [...]

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