A Survey on the Four Families of Performance Measures

Abstract

Performance measurement is one of the most studied subjects in financial literature. Since the introduction of the Sharpe ratio in 1966, a large variety of newmeasures has appeared constantly in scientific journals as well as in practitioners’ publications. The most complete and significant studies of performance measures, so far, have been written by Aftalion and Poncet, Le Sourd, Bacon, and Cogneau and Hubner. A review of the most recent literature led us to collect several dozen measures that we classify into four families. We first present the class of relative measures, starting with the Sharpe ratio. Secondly, we analyse absolute measures, beginning with the most famous one - the Jensen alpha. Thirdly, we study general measures based on specific features of the return distribution, where the pioneering contributions are those of Bernardo and Ledoit, and Keating and Shadwick. Finally, the fourth set concerns a few measures that explicitly take into account the investor’s utility functions

Is gold different for risk-averse and risk-seeking investors? An empirical analysis of the Shanghai Gold Exchange

“…Thus, to compare the risk of portfolios with and without gold, we choose to use the MVaR (Gregoriou and Gueyie, 2003) that takes higher moments of the distribution of returns into account (skewness and kurtosis). Moreover, this measure is appropriate to our portfolios because of their weak skewness, as pointed out by Caporin et al (2014).…”

Screening rules and portfolio performance

“…Next, we define all the PMs in each group. More details about the specific investment characteristics that these (and other) measures account for can be found in the survey of Caporin et al (2014).…”

“…SeeOwen and Rabinovitch (1983). 2 See, for instance,Bacon (2008) andCaporin et al (2014). 3 SeeBillio et al (2015).…”

Unequal returns: Using the Atkinson index to measure financial risk

“…These results can be compared to the empirical findings in Eling and Schuhmacher (2007) showing that the ranking of hedge funds is very similar for the various performance measures that they consider. There is a vast literature proposing alternative performance measures (Caporin et al, 2014) in particular focusing on downside risk (e.g., the popular Value at Risk). As mentioned above, Eling and Schuhmacher (2007) put those measures to the test using empirical evidence from hedge fund returns.…”