Sharpe Ratio for skew-normal distributions: a skewness-dependent performance trade-off?
Journal
Journal of Performance Measurement
ISSN
1522-8746
Type
journal article
Date Issued
2010-11-01
Author(s)
Abstract
Main academic criticism on the Sharpe ratio concerns its lack in incorporating skewness in performance evaluation. In this note we rewrite the classical Sharpe ratio for skew normal distributions. This new skew-normal Shape ratio consistently moves with skewness and no distorted information on performance is provided. An empirical investigation illustrates skew-normality of mutual and hedge fund returns. When investors are concerned about skewness, the use of the skewnormal
Sharpe ratio thus seems a proper choice for making performance rankings.
Sharpe ratio thus seems a proper choice for making performance rankings.
Language
English
Keywords
Optimal Asset Allocation
Sharpe Ratio
Azzalini's skewness coefficient
Skew-Normal
returns
returns
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
Spaulding Group
Publisher place
Somerset, NJ
Volume
14
Number
4
Start page
34
End page
48
Pages
15
Subject(s)
Division(s)
Eprints ID
206705