ASYMMETRIC INFORMATION AND PORTFOLIO PERFORMANCE-MEASUREMENT

This note argues that though Dave Mayers and Edward Rice were able to show that the CAPM could be used to detect superior investors in a world of asymmetric information, their demonstration does not resurrect the CAPM as a practical tool for performance measurement. To employ the Mayers-Rice model, an investment advisor would first have to determine that the CAPM holds for uninformed investors. As a means of avoiding the problem of testing the CAPM, a performance measure based only on returns is outlined. The measure is robust in that it would correctly designate superior investors in context of the CAPM, the arbitrage pricing model and many other equilibrium models of security pricing. © 1979.