The Modigliani M² measure and the Treynor T² measure A)are identical. B)are nearly identical and will rank portfolios the same way. C)are nearly identical, but might rank portfolios differently. D)are somewhat different; M²can be used to rank portfolios, butT²cannot.

Question

Quizplus · Accepted Answer

The Modigliani M² measure and the Treynor T² measure are both measures of risk-adjusted performance, but they differ in their approach. The Modigliani measure considers both the portfolio's excess return and the deviation of the portfolio return from the benchmark return, while the Treynor measure only considers the portfolio's excess return relative to its beta (systematic risk). While the measures are similar in concept and will rank portfolios similarly, it is possible for there to be discrepancies in the rankings due to the differing calculations. Therefore, choice C is the most accurate.

The Modigliani M2 Measure and the Treynor T2 Measure

The Modigliani M² Measure and the Treynor T² Measure