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L-Performance with an Application to Hedge FundsChristian GourierouxUniversity 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) Joann JasiakYork University - Department of Economics Serge DarollesUniversité Paris-Dauphine - DRM-CEREG July 1, 2008 Abstract: 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 working papers seriesDate posted: June 27, 2008 ; Last revised: February 7, 2009Suggested CitationContact Information
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