Fuzzy risk adjusted performance measures: Application to hedge funds

Jules Sadefo Kamdem, A. Mbairadjim Moussa and M. Terraza
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A. Mbairadjim Moussa: LAMETA - Laboratoire Montpelliérain d'Économie Théorique et Appliquée - UM1 - Université Montpellier 1 - UPVM - Université Paul-Valéry - Montpellier 3 - INRA - Institut National de la Recherche Agronomique - Montpellier SupAgro - Centre international d'études supérieures en sciences agronomiques - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier
M. Terraza: LAMETA - Laboratoire Montpelliérain d'Économie Théorique et Appliquée - UM1 - Université Montpellier 1 - UPVM - Université Paul-Valéry - Montpellier 3 - INRA - Institut National de la Recherche Agronomique - Montpellier SupAgro - Centre international d'études supérieures en sciences agronomiques - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier

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Abstract: In this paper, following the notion of probabilistic risk adjusted performance measures, we introduce that of fuzzy risk adjusted performance measures (FRAPM). In order to deal efficiently with the closing-based returns bias induced by market microstructure noise, as well as to handle their uncertain variability, we combine fuzzy set theory and probability theory. The returns are first represented as fuzzy random variables and then used in defining fuzzy versions of some adjusted performance measures. Using a recent ordering method for fuzzy numbers, we propose a ranking of funds based on these fuzzy performance measures. Finally, empirical studies carried out on fifty French hedge funds confirm the effectiveness and give the benefits of our approach over the classical performance ratios.

Keywords: Asset; allocation; Fuzzy; sets; theory; Fuzzy; random; variables; Hedge; funds; Performance; measures (search for similar items in EconPapers)
Date: 2012-11
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Citations: View citations in EconPapers (6)

Published in Insurance: Mathematics and Economics, 2012, 51 (3), pp.702-712. ⟨10.1016/j.insmatheco.2012.09.005⟩

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Journal Article: Fuzzy risk adjusted performance measures: Application to hedge funds (2012)
Working Paper: Fuzzy risk adjusted performance measures: application to Hedge funds (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02901867

DOI: 10.1016/j.insmatheco.2012.09.005

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