Through which form of analysis is managerial skill assessed?

Managerial skill is assessed through Ex Ante Alpha calculations because this approach evaluates the expected return an investment manager can achieve over a benchmark, after taking into account the risk involved. Ex Ante Alpha measures the manager's ability to generate returns that exceed those predicted by a model based on historical performance and relevant risk factors. This quantitative analysis is crucial because it can isolate the impact of the manager's skill from the broader market movements and overall portfolio characteristics. By focusing on the expected alpha, it provides a forward-looking perspective that assists investors in understanding how a manager might perform in varying market conditions.

In contrast, simply comparing historical returns does not account for the prevailing market conditions or specific risk factors that could influence past performance, making it a less reliable gauge of managerial skill. Qualitative assessments alone can miss critical numerical insights, and while they can provide context, they do not quantify performance outcomes. Random sampling of returns does not effectively analyze managerial skill, as it can introduce significant variability without offering a structured way to evaluate consistent performance against benchmarks. Thus, the reliance on Ex Ante Alpha allows for a more nuanced and effective assessment of a manager's ability to outperform the market.