Fuzzy risk adjusted performance measures: Application to hedge funds

Jules Sadefo Kamdem, A. Mbairadjim Moussa and M. Terraza

Insurance: Mathematics and Economics, 2012, vol. 51, issue 3, 702-712

Abstract: In this paper, following the notion of probabilistic risk adjusted performance measures, we introduce that of fuzzy risk adjusted performance measures (FRAPM). In order to deal efficiently with the closing-based returns bias induced by market microstructure noise, as well as to handle their uncertain variability, we combine fuzzy set theory and probability theory. The returns are first represented as fuzzy random variables and then used in defining fuzzy versions of some adjusted performance measures. Using a recent ordering method for fuzzy numbers, we propose a ranking of funds based on these fuzzy performance measures. Finally, empirical studies carried out on fifty French hedge funds confirm the effectiveness and give the benefits of our approach over the classical performance ratios.

Keywords: Asset allocation; Fuzzy sets theory; Fuzzy random variables; Hedge funds; Performance measures (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (6)

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Working Paper: Fuzzy risk adjusted performance measures: application to Hedge funds (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:51:y:2012:i:3:p:702-712

DOI: 10.1016/j.insmatheco.2012.09.005

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