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Measuring Investment Performance in a Rational Expectations Equilibrium Model

Anat R. Admati and Stephen A. Ross
Journal of Business
January, 1985
Vol. 58, Issue 1, Pages 1-26

In this paper we study the problem of measuring investment performance when superior performance is identified with superior information. We do this in the context of a full equilibrium model of securities markets, in which agents have diverse and asymmetric private information and behave optimally. It is shows that the traditional risk-return measures are inappropriate in this context, and we develop alternatives statistical procedures for making valid performance inferences.