A Critical Evaluation of the Portfolio Performance Indices Under Rank Transformation

Ken Hung (), Chin W. Yang (), Matthew Brigida () and Dwight B. Means
Additional contact information
Ken Hung: Texas A&M International University
Chin W. Yang: Clarion University of Pennsylvania
Matthew Brigida: SUNY Polytechnic Institute
Dwight B. Means: Clarion University of Pennsylvania

Chapter 22 in Encyclopedia of Finance, 2022, pp 761-771 from Springer

Abstract: Abstract This chapter analytically determines the conditions under which four commonly utilized portfolio measures (the Sharpe index, the Treynor index, the Jensen alpha, and the adjusted Jensen alpha) will be similar and different. If the single index CAPM model is appropriate, we prove theoretically that well-diversified portfolios must have similar rankings for the Treynor, Sharpe indices, and adjusted Jensen’s alpha ranking. The Jensen alpha rankings will coincide if and only if the portfolios have similar betas. For multi-index CAPM models however, the Jensen alpha will not give the same ranking as the Treynor index even for portfolios of large size and similar betas. Furthermore, the adjusted Jensen’s alpha ranking will not be identical to the Treynor index ranking.

Keywords: Sharpe index; Treynor index; Jensen alpha; Adjusted Jensen alpha; CAPM model; Multi-index CAPM model; Performance measures; Rank correlation; Ranking; Rank transformation (search for similar items in EconPapers)
Date: 2022
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:spr:sprchp:978-3-030-91231-4_22

Ordering information: This item can be ordered from
http://www.springer.com/9783030912314

DOI: 10.1007/978-3-030-91231-4_22

Access Statistics for this chapter

More chapters in Springer Books from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().