Hedge Funds Performance Ratios Adjusted to Market Liquidity Risk

Pierre Clauss ()

Journal of Financial Transformation, 2011, vol. 31, 133-139

Abstract: Market liquidity is complex to measure empirically. This explains why there is no consensus about performance ratios adjusted to its risk. We summarize market liquidity by two major characteristics: a costly one because of the loss of the illiquidity premium; and a profitable one when investors can withdraw when they want. In this paper, three new performance indicators are proposed to integrate, to a certain extent, market liquidity risk, especially for hedge funds investment: liquidity-loss ratio will capture the cost characteristic whereas liquidity-Sharpe ratio and liquidity-profit ratio will represent the profitable alternative. These new ratios try to be simple and precise enough to help investors choose between hedge funds strategies according to their liquidity profile: do they want to capture illiquidity risk premium, or do they want to be free to withdraw?

Keywords: Market liquidity risk; Hedge funds; Sharpe ratio; Information ratio; Kalman Filter; Momentum. (search for similar items in EconPapers)
JEL-codes: C22 G11 (search for similar items in EconPapers)
Date: 2011
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ris:jofitr:1454

Access Statistics for this article

Journal of Financial Transformation is currently edited by Prof. Shahin Shojai

More articles in Journal of Financial Transformation from Capco Institute 77 Water Street, 10th Floor, New York NY 10005.
Bibliographic data for series maintained by Prof. Shahin Shojai ( this e-mail address is bad, please contact ).