Ranking Investments Using the Lorenz Curve

Doron Nisani ()
Additional contact information
Doron Nisani: Ben-Gurion University of the Negev

Journal of Quantitative Economics, 2019, vol. 17, issue 1, No 1, 9 pages

Abstract: Abstract Ranking investments is important for measuring the performance of financial assets over a period of time. The Mean-Variance Model (MV Model) suggests the Reward-to-Variability Index (Sharpe Index) for ranking the performances of investments. However, this model is based on the implicit assumption that the investments’ rate of return is normally distributed. This assumption highlights the importance of a diverse portfolio, but is rarely satisfied. The most accurate method of ranking investments is according to the investor’s preference ratio, described by the stochastic dominance rules (SD Rules). The SD Rules are coherent with the generic properties of the investor’s preference, but their main disadvantage lies in their complex calculations. This paper presents a new method of ranking investments using the Lorenz curve, thus utilizing the investor’s preference ratio ranking and the simplicity of applying the Lorenz curve so as to describe a full order of ranking according to the investor’s behavior.

Keywords: Investment management; Stochastic dominance; Lorenz curve; Gini Index (search for similar items in EconPapers)
JEL-codes: D81 G11 G32 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://link.springer.com/10.1007/s40953-018-0121-z Abstract (text/html)
Access to the full text of the articles in this series is restricted.

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:spr:jqecon:v:17:y:2019:i:1:d:10.1007_s40953-018-0121-z

Ordering information: This journal article can be ordered from
http://www.springer.com/economics/journal/40953

DOI: 10.1007/s40953-018-0121-z

Access Statistics for this article

Journal of Quantitative Economics is currently edited by Dilip Nachane and P.G. Babu

More articles in Journal of Quantitative Economics from Springer, The Indian Econometric Society (TIES) Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().