L-performance with an application to hedge funds

Serge Darolles (), Christian Gourieroux and Joann Jasiak
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Serge Darolles: DRM-Finance - DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique
Christian Gourieroux: CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique

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Abstract: This paper introduces a new parametric fund performance measure, called the L-performance. The L-performance is an alternative to the Sharpe performance, which is commonly used in practice despite its inability to account for skewness and heavy tails of unconditional return distributions. The L-performance improves upon the Sharpe measure in this respect. Technically, it resembles the Sharpe measure in that it is defined as a ratio of the first- and second-order moments, which are the trimmed L-moments instead of the conventional (power) moments. The trimming parameters allow for focusing the L-performance on specific risk levels of interest, according to financial risk criteria. For illustration, a set of L-performances is computed for a variety of hedge funds. The empirical study shows the use of L-performance for fund ranking and return smoothing (manipulation) control.

Keywords: Hedge fund; Sharpe performance; L-moment; Distortion risk Measure; Ranking; Bias ratio; Manipulation (search for similar items in EconPapers)
Date: 2009-06-01
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Citations: View citations in EconPapers (15)

Published in Journal of Empirical Finance, 2009, 16, pp.671-685. ⟨10.1016/j.jempfin.2009.05.003⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00677730

DOI: 10.1016/j.jempfin.2009.05.003

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