Question

Jim Chanos's short fund, Ursus, has an average lost of 0.7% annually from founding over 30 years ago to the end of 2017. For reference, the market risk premium during the same time period was about 7% per year and the risk-free rate was 3%. Assume that Jim's portfolio of short trades has a beta of -1. Interpret the abnormal performance of Jim Chanos' fund.

Answer 1

The abnormal performance of of Jim chanos can be attributed to his excessive underperformance to that of market index because he has significantly underperform the the market rate of return to a large extent and the overall expected rate of return

=Risk free rate+(beta X market risk premium)

= 3+(-1*7)

= -4%

We can see that his fund had excessively underperforming the market as he has not been able to provide with the desired rate of return on the shorter side.

This abnormal performance can be attributed to the continuous run on the stocks on the upside and lack of possibility of being on the shorter side for a longer period of time.