Performance Evaluation, Portfolio Selection, and HARA Utility

The main goal of this work is the generalization of the approach of Jobson and Korkie for funds performance evaluation. Therefore, the paper considers the portfolio selection problem of an investor who faces short sales restrictions when choosing among F different investment funds and assumes the investor's utility function to be of the HARA type. A performance measure is developed and its relationship to previously proposed measures is discussed. Particular attention is given to the special case of cubic utility implying skewness preferences. Findings are illustrated by an empirical example.