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Sharpe Ratio Related Scholarly Compositions
See also:
Sharpe Ratio Related
News,
Sharpe Ratio Related Books,
or
Sharpe Ratio Home Page.
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Adjusting for risk: An improved Sharpe ratio
by Kevin
Dowd
University of Nottingham Business School
July, 1999
Abstract
This paper proposes a new rule for risk adjustment and
performance evaluation. This rule is a generalization of the
well-known Sharpe ratio criterion, and under normal conditions
enables a manager to correctly assess alternative risky
investments. The rule is superior to existing rules such as the
standard Sharpe rule and the RAROC, and can make a substantial
difference in estimates of required returns...
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Are independent risks substitutes according to
the Generalized Sharpe Ratio?
by Dirk
Tasche & Luisa Tibiletti
April 11, 2001
Abstract
Independent risks are substitutes if the opportunity to invest
in one risk cuts
down the demand in the others. Intuition seems to sustain this
idea, but if the problem is tackled in a normative framework, no
consensus in the literature is found. In this paper we
investigate what does happen if the decision rule is based on
the Generalized Sharpe Ratio...
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Bias and Consistency of the Maximum Sharpe Ratio
by R. A.
Maller, R. B. Durand, & P. T. Lee
Australian National University & University of Western Australia
Abstract
We show that the maximum Sharpe ratio obtained via the Markowitz
optimization procedure from a sample of returns on a number of
risky assets is, under commonly satisfied assumptions, biased
upwards for the population value. Thus investment advice,
decisions and assessments based on the estimated Sharpe ratio
will be overly optimistic. The bias in the estimator is shown
theoretically and illustrated using a data set of Spiders and
iShares...
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A Double Sharpe Ratio
by
Hrishikesh D. Vinod & Matthew R. Morey
Fordham University & Pace University
June 1, 1999
Abstract
Sharpe's (1966) portfolio performance ratio, the ratio of the
portfolio's expected return to its standard deviation, is a very
well known tool for comparing portfolios. However, due to the
presence of random denominators in the definition of the ratio,
the sampling distribution of the Sharpe ratio is somewhat
difficult to determine. This paper studies the properties of
Sharpe ratio and then uses the bootstrap methodology to suggest
a new "double" Sharpe ratio which incorporates estimation
risk...
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Easily Implemented Confidence Intervals and Hypothesis Tests for
Sharpe Ratios Under General Conditions
by J.D. Opdyke
DataMineIt
2006
Abstract
Until recently, since Jobson & Korkie (1981) derivations
of the asymptotic distribution of the Sharpe ratio that are
practically useable for generating confidence intervals or for
conducting one- and two-sample hypothesis tests have relied on
the restrictive, and now widely refuted, assumption of normally
distributed returns. This paper presents an easily implemented
formula for the asymptotic distribution that is valid under very
general conditions – stationary and ergodic returns – thus
permitting time-varying conditional volatilities, serial
correlation, and other non-iid returns behavior. It is
consistent with that of Christie (2005), but it is more
mathematically tractable and intuitive, and simple enough to be
used in a spreadsheet. Also generalized beyond the normality
assumption is the small sample bias adjustment presented in
Christie (2005). A thorough simulation study examines the finite
sample behavior of the derived one- and two-sample estimators
under the realistic returns conditions of concurrent
leptokurtosis, asymmetry, and importantly (for the two-sample
estimator), strong positive correlation between funds, the
effects of which have been overlooked in previous studies. The
two-sample statistic exhibits reasonable level control and power
under these real world conditions. This makes its application to
the ubiquitous Sharpe ratio rankings of mutual funds very
useful, since the implicit pairwise comparisons in these
orderings have little inferential value on their own. Using
actual returns data from forty mutual funds, the statistic
yields statistically significant results for many such pairwise
comparisons of the ranked funds. It should be useful for other
purposes as well, wherever Sharpe ratios are used in performance
assessment.
JEL: C10, C12, C13, G10, G11 Keywords: performance, risk,
portfolio, mutual fund, asymmetry, heavy tails
View composition on SSRN
View composition on DataMineIt.com
See
Also:
SAS Program for generating Fund rankings
with p-values, as derived in paper
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Efficient Use of Conditioning Information: A
Sharpe Ratio Based Test for Return Predictability
by Abhay
Abhyankar, Devraj Basu, & Alexander Stremme
Warwick Business School
March, 2002
Abstract
In this paper we propose a Sharpe ratio based test of whether
return predictability significantly expands the mean-variance
frontier. Building on the conditional asset pricing theory of
Hansen and Richard (1987), as well as results of our own earlier
work, we are able to explicitly characterize the difference in
maximum squared Sharpe ratios with and without conditioning
information. We show that this difference can be related
directly to the R2 of a predictive regression...
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Financial Valuation of Mortality Risk via the
Instantaneous Sharpe Ratio
by Moshe A.
Milevsky, S. David Promislow, & Virginia R. Young
September 20, 2005
Abstract
We develop a theory for pricing non-diversifiable mortality risk
in an incomplete market. We do this by assuming that the company
issuing a mortality-contingent claim requires compensation for
this risk in the form of a pre-specified instantaneous Sharpe
ratio. We derive a relationship between the physical
(biological) survival probability and the pricing
(risk-adjusted) survival probability based on this ratio...
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Is the Sharpe ratio useful in asset allocation?
by Steve
Christie
Macquarie Applied Finance Centre
May 2, 2005
Abstract
Investors often consider Sharpe ratios when making asset
allocation decisions and comparing portfolios. Given sampling
error in estimated means and variances of returns, promoting
Sharpe ratios as useful to help choose between asset allocations
or portfolios may be misleading. Estimators of the Sharpe ratio
have less helpful distributions than estimators of mean and
variance...
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Nonparametric Estimation of the Time-varying
Sharpe Ratio in Dynamic Asset Pricing Models
by Peter
Woehrmann, Willi Semmler, & Martin Lettau
Institute for Empirical Research in Economics
January, 2005
Abstract
Economic research of the last decade linking macroeconomic
fundamentals to asset prices has revealed evidence that standard
intertemporal asset pricing theory is not successful in
explaining (unconditional) first moments of asset market
characteristics such as the risk-free interest rate, equity
premium and the Sharpe-ratio. Subsequent empirical research has
pursued the question whether those characteristics of asset
markets are time varying and, in particular, varying over the
business cycle. Recently intertemporal asset pricing models have
been employed to replicate those time varying characteristics...
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NONLINEAR TRADING MODELS THROUGH SHARPE RATIO
MAXIMIZATION
by Mark
Choey & Andrea S. Weigend
NYU Stern School of Business & Advanced Technology Group
1997
Abstract
While many trading strategies are based on price prediction,
traders in nancial
markets are typically interested in risk-adjusted performance
such as the Sharpe
Ratio, rather than price predictions themselves. This paper
introduces an ap-
proach which generates a nonlinear strategy that explicitly
maximizes the Sharpe
Ratio. It is expressed as a neural network model whose output is
the position size
between a risky and a risk-free asset...
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Outperformance of Sharpe ratio based strategies
by Morten
Mosegaard Christensen
September 16, 2005
Abstract
We show that strategies maximizing the instantaneous Sharpe
ratio can be out-
performed in certain financial market models if they deviate
significantly from the
growth optimal portfolio. Investors aiming for high Sharpe
ratios should use an
approximation procedure to approach the desired level of risk...
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Performance Hypothesis Testing with the Sharpe
Ratio
by
Christoph Memmel
University of Cologne, Germany
2003
Abstract
The Jobson-Korkie-test of equal Sharpe Ratios is widely used in
the performance evaluation literature. This letter has two
purposes: First, it corrects a typographical error in the test
statistic. Second, it shows that the test statistic can be
simplified without loss of its statistical properties...
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The Pitfall of Using Sharpe Ratio
by Mei-Chen
Lin & Pin-Huang Chou
National United University, Taiwan & National Central
University, Taiwan
2003
Abstract
We show that when returns are iid, the Sharpe ratio calculated
over a T-period holding horizon will first rise and then fall as
T increases, instead of a monotonic function of T if one ignores
the compounding effect in calculating long-term returns.
Specifically, we show that ignoring the compounding term will
yield a biased estimate of Sharpe ratio, and the bias enlarges
when a long investment horizon is considered. To calculate
long-horizon Sharpe ratios, we propose the use of block
resampling to retain the serial dependency in the data...
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Sharpe Ratio as a Performance Measure in a
Multi-Period Setting
by Jaksa
Cvitanic, Ali Lazrak, & Tan Wang
January 28, 2004
Abstract
We study Sharpe ratio as a performance measure in a multi-period
setting. We show that the typical mean-variance efficiency
justification for using Sharpe ratio, valid in a static setting,
typically fails in a multi-period setting. To focus on the
contrast between static vs multi-period settings, we maintain
the mean-variance utility assumption of the static model...
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When are Sharpe Ratio Based Investments Superior?
by Morten
Mosegaard Christensen & Eckhard Platen
September 16, 2005
Abstract
In a continuous time setting we provide exact conditions under
which all utility
maximizing investors choose to maximize the Sharpe ratio, and
hence reduce the
dimension of the investment decision due to two-fund separation.
Our conditions
covers cases where the investment opportunity set can be
stochastic and the mutual fund can have a variety of
distributions. Our results are stated for quite general
specifications of investor preferences...
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Back to Scholarly Compositions
See also:
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News,
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or
Sharpe Ratio Home Page.
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