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Conditionally Fitted Sharpe Performance with an Application to Hedge Fund Rating

47 Pages Posted: 30 Jun 2008 Last revised: 15 Jun 2015

Christian Gourieroux

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)

Serge Darolles

Université Paris Dauphine - DRM-CEREG

Date Written: June 15, 2009

Abstract

This paper reviews the fund ratings based on Sharpe performance measures. We define a battery of performance measures in a mean-variance framework. They differ by the information taken into account in their computation, but also by the potential use of the fund by the investor. We apply these performance measures to a set of hedge funds and discuss how the corresponding ratings depend on the assumptions concerning investor's holding and information. Four advantages of Sharpe performances can be underlined and are especially important for the retail investor. First, the measures correspond to the standard ones used for mutual funds and known by retail investors. Second, the numerical results can be compared, even if they are obtained with different assumptions. Third, the rankings are based on regression analysis and thus easy to compute. Fourth, these performance measures can be easily used in the design of an optimal basket of hedge funds. The performance measures can also be used to partition the set of funds into homogenous segments.

Keywords: Hedge Fund, Sharpe Performance, Sharpe Ratio, Fitted Performance, Fund Rating, Segmentation, Standardisation, Term Structure

Suggested Citation

Gourieroux, Christian and Darolles, Serge, Conditionally Fitted Sharpe Performance with an Application to Hedge Fund Rating (June 15, 2009). Available at SSRN: https://ssrn.com/abstract=1151834 or http://dx.doi.org/10.2139/ssrn.1151834

Christian Gourieroux

University of Toronto - Department of Economics ( email )

150 St. George Street
Toronto, Ontario M5S 3G7
Canada
416-978-4349 (Phone)
416-978-6713 (Fax)

Center for Interuniversity Research and Analysis on Organization (CIRANO) ( email )

2020 rue University, 25th Floor
Montreal, Quebec H3C 3J7
Canada

Ecole Nationale de la Statistique et de l'Administration Economique (ENSAE) ( email )

15 Boulevard Gabriel Peri
92245 Malakoff Cedex
France
33.4117.7666 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Serge Darolles (Contact Author)

Université Paris Dauphine - DRM-CEREG ( email )

place du Maréchal de Lattre de Tassigny
cedex 16
Paris, 75775
France

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