Saturday, January 8, 2011

Appraisal Ratio

The Appraisal Ratio is designed to determine the level of the fund manager's investment picking ability and performance. The appraisal ratio is calculated as the portfolio Alpha divided by the portfolio Unsystematic Risk. Alpha is the stock-specific returns (i.e. returns after accounting for market movements), and unsystematic risk is the risk specific to the stock (e.g. business risk, etc), also referred to as residual standard deviation. Thus the Appraisal ratio assess the amount of excess returns a manager generates, compared to the amount of excess risk. The higher the ratio, the better the performance and presumably also the ability of the fund manager.

Synonyms: Alpha, Excess returns, Risk adjusted returns

If you have any further questions or would like to add to this fund management term, then please submit your thoughts below.

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