I don’t get it well. Can anyone offer a brief summary ? Thanks in advance !
It plots managers’ performance relative to a benchmark, with a statistical confidence interval
Think of it as normal bell curve but rotated axis-you will get the idea.
I just do not understand if any conclusion can be made by examing the Quality Control Charts.
What I mean is that how to judge is a manager has superior or inferior performance just by examing the Quality Control Charts.
It’s a bell curve with confidence interval. Goes back to quant days in level 2. Hypothesis testing.
So, we can conclude that a manager’s value-added return is statistically different from zeo if value-added return falls outside the confidence intervall ?
Exactly. So we reject the null which says manager does not add value.
derswap07, TKVM !
You are welcome.
Is the “value-added return” the cumulative value-added return or the daily value-added return? Same thing goes with the 2sd range for the value-added return; do we use the deviation of the cumulative alpha or the daily alpha. When I look at the chart in the Schweser notes, it appears to be using a cumulative return as I would expect the line to dart around zero quite a bit if daily returns were used – but I can’t get my head around how the standard deviation of the cumulative returns would work – wouldn’t it be kind of skewed?