25 Pages Posted: 23 Apr 2009 Last revised: 5 Jan 2010
Date Written: January 4, 2010
The portfolio performance measures based on the Value-at-Risk (VaR) concept have gained widespread popularity and are often used in empirical studies. Unfortunately, we have noticed that in majority of empirical studies a VaR-based performance measure is used inconsistently. The goal of this paper is, therefore, to emphasize how to consistently use VaR in portfolio performance evaluation. We also elaborate on a simple framework that allows to derive a general formula for a portfolio performance measure which is not limited to the use of VaR-based reward and risk measures, but is valid for all reward and risk measures that satisfy a few plausible properties.
Keywords: performance measure, portfolio performance evaluation, risk measure, deviation measure, value-at-risk, conditional value-at-risk, expected shortfall, expected tail loss
JEL Classification: D81, G11
Suggested Citation: Suggested Citation
Zakamulin, Valeriy, On the Consistent Use of VaR in Portfolio Performance Evaluation: A Cautionary Note (January 4, 2010). Available at SSRN: https://ssrn.com/abstract=1393690 or http://dx.doi.org/10.2139/ssrn.1393690