 Beyond Sharpe ratio: Optimal asset allocation using different performance ratiosSimone Farinelli, Manuel Ferreira, Damiano Rossello, Markus Thoeny and Luisa Tibiletti () Journal of Banking & Finance, 2008, vol. 32, issue 10, 2057-2063 Abstract: As the assumption of normality in return distributions is relaxed, classic Sharpe ratio and its descendants become questionable tools for constructing optimal portfolios. In order to overcome the problem, asymmetrical parameter-dependent performance ratios have been recently proposed in the literature. The aim of this note is to develop an integrated decision aid system for asset allocation based on a toolkit of eleven performance ratios. A multi-period portfolio optimization up covering a fixed horizon is set up: at first, bootstrapping of asset return distributions is assessed to recover all ratios calculations; at second, optimal rebalanced-weights are achieved; at third, optimal final wealth is simulated for each ratios. Eventually, we make a robustness test on the best performance ratios. Empirical simulations confirm the weakness in forecasting of Sharpe ratio, whereas asymmetrical parameter-dependent ratios, such as the Generalized Rachev, Sortino-Satchell and Farinelli-Tibiletti ratios show satisfactorily robustness. Keywords: Asset; allocation; Performance; ratios; One-sided; measures; Portfolio; optimization (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:32:y:2008:i:10:p:2057-2063 Access Statistics for this article Journal of Banking & Finance is currently edited by Ike Mathur More articles in Journal of Banking & Finance from Elsevier |
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