The Efficacy of the Sortino Ratio and Other Benchmarked Performance Measures Under Skewed Return Distributions

Ashraf Chaudhry and Helen L. Johnson
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Ashraf Chaudhry: Queensland Investment Corporation, Brisbane, QLD, 4001.
Helen L. Johnson: Queensland University of Technology, Brisbane, QLD, 4001.

Australian Journal of Management, 2008, vol. 32, issue 3, 485-502

Abstract: This paper will investigate the suitability of existing performance measures under the assumption of a clearly defined benchmark. A range of measures are examined including the Sortino Ratio, the Sharpe Selection ratio (SSR), the Student's t-test and a decay rate measure. A simulation study is used to assess the power and bias of these measures based on variations in sample size and mean performance of two simulated funds. The Sortino Ratio is found to be the superior performance measure exhibiting more power and less bias than the SSR when the distribution of excess returns are skewed.

Keywords: SORTINO RATIO; SHARPE SELECTION RATIO; POWER; BIAS; SKEWED; BOOTSTRAP (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:ausman:v:32:y:2008:i:3:p:485-502

DOI: 10.1177/031289620803200306

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