Hedge Funds Risk-adjusted Performance Evaluation: A Fuzzy Set Theory-Based Approach

Alfred M. Mbairadjim, Jules Sadefo Kamdem and Michel Terraza

Chapter 3 in Understanding Investment Funds, 2013, pp 57-71 from Palgrave Macmillan

Abstract: Abstract The hedge funds performance evaluation requires an adequate characterization of returns distributions shape. This characterization is made by thorough probabilistic moments. Different types of moments were used in the literature, namely, the conventional (central or raw) moments (Sharpe, 1966, Treynor and Black, 1973), the partial moments (Sortino and van der Meer, 1991, Sortino, van der Meer and Platinga, 1999, Bernardo and Ledoit, 2000, Sortino and Satchel, 2001, Farinelli and Tibiletti, 2008) and more recently the Trimmed L-moments (Darrolles et al., 2009). These authors generally define the performance ratio by dividing a location measure by a dispersion measure. The seminal approach deriving from the Capital Asset Pricing Model (CAPM) of Sharpe (1964), Lintner (1965), Mossin (1966) and Treynor (1962) uses the sample mean and the standard deviation of excess returns as location and dispersion measures respectively. These two statistics do not always adequately describe the returns distributions, especially in the presence of heavy tails and/or of skewness.

Keywords: Membership Function; Fuzzy Number; Hedge Fund; Sharpe Ratio; Quantile Function (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-137-27361-1_4

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DOI: 10.1057/9781137273611_4

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