Nonparametric analysis of financial portfolio performance

Laurens Cherchye, Bram De Rock and Dieter Saelens

No 2024-08, Working Papers ECARES from ULB -- Universite Libre de Bruxelles

Abstract: We propose a nonparametric method to assess financial portfolio performance that naturally integrates the well-known Sharpe ratio. The method produces an intuitive “efficiency” measure that quantifies the evaluated household’s portfolio performance relative to the observed performance of other (best performing) households. It allows us to account for cross-household variation in risk-free return rates and to mitigate the impact of outlier behavior. We use our method to analyze the financial portfolio performance of Belgian households, using data from the 2010, 2014 and 2017 waves of the Household Finance and Consumption Survey. We report significant crosssectional variation in portfolio efficiency. Highly educated, non-retired and wealthier households generally achieve higher levels of efficiency, as do households with a female head. We also report that households improve their performance over time, suggesting a learning-by-doing effect.

Keywords: household finance; benchmarking; mean-variance portfolios; Sharpe ratio; nonparametric method (search for similar items in EconPapers)
Pages: 39 p.
Date: 2024-06
New Economics Papers: this item is included in nep-eff
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