Temporal aggregation of the Aumann–Serrano and Foster–Hart performance indexes

Jiro Hodoshima and Toshiyuki Yamawake

International Review of Financial Analysis, 2022, vol. 83, issue C

Abstract: We investigate the temporal aggregation of the Aumann–Serrano (AS) and Foster–Hart (FH) performance indexes considered by Kadan and Liu (2014). We provide sufficient conditions for the two indexes to be closed under temporal aggregation, that is, for the two indexes to have the same values when the observations are aggregated. Here, we present empirical examples using U.S. stock data and the four anomalies studied by Fama and French (1993) and Carhart (1997), where the two indexes have nearly identical values in some stocks and one anomaly when the observations are aggregated. Unlike the Sharpe ratio, the AS and FH performance indexes have more stable properties with respect to temporal aggregation.

Keywords: Temporal aggregation; Performance index; Aumann–Serrano index; Foster–Hart index; Sharpe ratio (search for similar items in EconPapers)
JEL-codes: C22 C46 G11 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:83:y:2022:i:c:s1057521922001922

DOI: 10.1016/j.irfa.2022.102232

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