A Note on Performance Evaluation

Problems in distinguishing between market timing and security selection ability are reviewed. It is shown that the ability of a manager who receives signals with continuous distributions can be consistently measured the assumption of a dichotomous or coarse information structure is not required. Models with unobservable portfolios (and observable returns) are contrasted with models in which both returns and portfolios are infrequently observed. It is shown that the former do not capture all the issues in the latter.