What does performance appraisal involve?

Performance appraisal primarily involves assessing the quality and consistency of an account's relative performance. This process typically focuses on evaluating how well an investment has performed in comparison to either benchmarks or other similar investments, which helps investors and portfolio managers determine their strategies' effectiveness.

This approach can reveal insights into various factors influencing performance, such as the investment manager's skill and the impact of different investment decisions. By understanding relative performance, stakeholders can make informed decisions regarding future investments and potentially adjust strategies for better outcomes.

The other options provided involve different aspects of investment analysis. Evaluating market trends and economic indicators pertains more to macroeconomic analysis, while calculating transaction costs deals with the expenses involved in executing trades. Comparing performance against historical averages, though somewhat related, does not focus specifically on the relative aspect that is crucial in performance appraisal.