L-Performance with an Application to Hedge Funds
University of Toronto - Department of Economics; Center for Interuniversity Research and Analysis on Organization (CIRANO); Ecole Nationale de la Statistique et de l'Administration Economique (ENSAE); National Bureau of Economic Research (NBER)
York University - Department of Economics
Université Paris Dauphine - DRM-CEREG
July 1, 2008
This paper introduces a new fund performance measure, called the L-performance. It is proposed as an alternative to the Sharpe performance measure that is commonly used for fund performance valuation despite its inability to account for skewness and thick tails of fund return distributions. The L-performance improves upon the Sharpe measure in this respect. Technically, the L-performance is based on sample statistics, called L-moments, which are conceptually close to the conventional power moments, but provide more detailed information about the extremes. For this reason, the L-moments are used for prediction and assessment of extreme events, such as floods and earthquakes. In this paper, the new L-performance measure is calculated for a variety of hedge funds and is used to derive a fund ranking.
Number of Pages in PDF File: 28
Keywords: Hedge Fund, Sharpe Performance, L-moment, Distortion Risk Measure, Ranking
Date posted: June 27, 2008 ; Last revised: February 7, 2009
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