Beyond the Sharpe ratio: An application of the Aumann–Serrano index to performance measurement

Ulrich Homm and Christian Pigorsch

Journal of Banking & Finance, 2012, vol. 36, issue 8, 2274-2284

Abstract: We propose a performance measure that generalizes the Sharpe ratio. The new performance measure is monotone with respect to stochastic dominance and consistently accounts for mean, variance and higher moments of the return distribution. It is equivalent to the Sharpe ratio if returns are normally distributed. Moreover, the two performance measures are asymptotically equivalent as the underlying distributions converge to the normal distribution. We suggest a parametric and a non-parametric estimator for the new performance measure and provide an empirical illustration using mutual funds and hedge funds data.

Keywords: Performance measurement; Sharpe ratio; Aumann–Serrano index of riskiness; Skewness; Kurtosis; Non-normality (search for similar items in EconPapers)
JEL-codes: D81 G11 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (54)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:36:y:2012:i:8:p:2274-2284

DOI: 10.1016/j.jbankfin.2012.04.005

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