Incremental Sharpe and other performance ratios

Eric Benhamou () and Beatrice Guez ()

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Abstract: We present a new methodology of computing incremental contribution for performance ratios for portfolio like Sharpe, Treynor, Calmar or Sterling ratios. Using Euler's homogeneous function theorem, we are able to decompose these performance ratios as a linear combination of individual modified performance ratios. This allows understanding the drivers of these performance ratios as well as deriving a condition for a new asset to provide incremental performance for the portfolio. We provide various numerical examples of this performance ratio decomposition. JEL classification: C12, G11.

Keywords: Sharpe; Treynor; recovery; incremental Sharpe ratio; portfolio diversification; MILES; LAMSADE (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-rmg
Note: View the original document on HAL open archive server: https://hal.science/hal-02012443v2
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Citations: View citations in EconPapers (2)

Published in Journal of Statistical and Econometric Methods, 2018, xx, pp.2241 - 0376

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Working Paper: Incremental Sharpe and other performance ratios (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02012443

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