Asymmetry and performance metrics for equity returns
Loading...
Date
2016
Journal Title
Journal ISSN
Volume Title
Publisher
Abstract
An assumption of symmetric asset returns, together with globally risk averse utility
functions, is unappealing for fund managers and other activist investors, whose preferences
switch between risk aversion on the downside and risk seeking on the upside. A performance
return criterion is originated that is more consistent with the implicit Friedman-Savage utility
ordering. Adapted from recent developments in the income distribution literature, the proposed
metric weights the lower versus upper conditional expected returns, while a dual spread or
dispersion metric also exists. The resulting performance metric is easy to compute. A point of
departure is the conventional Sharpe performance ratio, with the empirical comparisons extending
to a range of existing performance criteria. In contrast, the proposed W-metric results in
different and more embracing performance rankings.
Description
Table of contents
Keywords
asymmetry, W-metric, Sharpe ratio, fund performance measures, Friedman-Savage utility, equity returns