Two investment advisers are comparing performance. One averaged a 19% return and the other a 16% return. However, the beta of the first adviser was 1.5, while that of the second was 1.
a) Can you tell which adviser was a better selector of individual stocks (aside from the issue of general movements in the market)? What is the performance measure of individual stocks?
b) If the T-bill rate were 6% and the market return during the period were 14%, which adviser would be the superior stock selector?
c) What if the T-bill rate were 3% and the market return 15%.