Simple Qualitative Assessment of Investment Recommendations

ABSTRACT: This paper outlines a simple methodology for assessing the impact of binary “invest/don‟t invest” recommendations of investment portfolios, made to institutional investors. These recommendations are compared to the performance of the portfolios in fixed income and other investment strategies in reference to their benchmarks. This methodology entails estimation techniques that abound across various regulatory and risk-management applications in the finance industry. The same techniques may serve as blueprint toward the development of applied practices, through which indications about performance of portfolios compared to corresponding recommendations could be obtained. Use of such practices in the investment industry, could be required by U.S. financial regulators.
KEYWORDS: Principal Components, Discriminant Analysis, Information Ratio, Pay-to-Play, Advisory Capture