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The efficacy of the Sortino ratio and other benchmarked performance measures under skewed return distributions

Chaudhry, Ashraf & Johnson, Helen (2008) The efficacy of the Sortino ratio and other benchmarked performance measures under skewed return distributions. Australian Journal of Management, 32(3), pp. 485-502.

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Abstract

This paper will investigate the suitability of existing performance measures under the assumption of a clearly defined benchmark. A range of measures are examined including the Sortino Ratio, the Sharpe Selection ratio (SSR), the Student’s t-test and a decay rate measure. A simulation study is used to assess the power and bias of these measures based on variations in sample size and mean performance of two simulated funds. The Sortino Ratio is found to be the superior performance measure exhibiting more power and less bias than the SSR when the distribution of excess returns are skewed.

Impact and interest:

7 citations in Scopus
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3 citations in Web of Science®

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ID Code: 30956
Item Type: Journal Article
Keywords: Sortino ratio, Sharpe selection ratio, Power, Bias, Skewed
ISSN: 0312-8962
Subjects: Australian and New Zealand Standard Research Classification > MATHEMATICAL SCIENCES (010000) > APPLIED MATHEMATICS (010200) > Financial Mathematics (010205)
Australian and New Zealand Standard Research Classification > MATHEMATICAL SCIENCES (010000) > STATISTICS (010400) > Forensic Statistics (010403)
Divisions: Past > QUT Faculties & Divisions > Faculty of Science and Technology
Deposited On: 12 Feb 2010 22:51
Last Modified: 29 Feb 2012 23:50

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