Yes, the Choice of Performance Measure Does Matter for Ranking of US Mutual Funds

17 Pages Posted: 13 May 2009 Last revised: 18 Dec 2009

See all articles by Jose Renato Haas Ornelas

Jose Renato Haas Ornelas

Banco Central do Brasil

Antonio F. A. Silva Jr.

Federal University of Bahia - UFBA

Jose L. B. Fernandes

Universidade de Brasília

Date Written: December 16, 2009

Abstract

Recent literature in performance evaluation has focused on preferences and characteristics of returns’ distribution that go beyond mean and variance world. However, Eling (2008) compared the Sharpe ratio with some of these performance measures, and found virtually identical rank ordering using mutual fund data. This paper compares 13 performance measures with the traditional Sharpe Ratio using a sample of US Fixed-Income, Equity and Asset Allocation Mutual Funds. Results show that performance measures based on absolute reward-risk ratios have similar rankings, when the numerator (mean excess return) is the same. However, when we move to other types of performances measures, results may be significantly different. This is the case of the MPPM (Manipulation-proof Performance Measure), Upside Potential Ratio, Appraisal Ratio. Results are especially different for the MPPM. Robustness checks show that some of the performance measures are very sensitive to parameters’ changes. Therefore, the choice of the performance measure is actually important for mutual fund ranking and selection.

Keywords: Performance Measure, Rank Correlation, Sharpe Ratio

JEL Classification: D81, G11

Suggested Citation

Ornelas, Jose Renato Haas and Silva Jr., Antonio F. A. and Fernandes, Jose Luiz Barros, Yes, the Choice of Performance Measure Does Matter for Ranking of US Mutual Funds (December 16, 2009). Available at SSRN: https://ssrn.com/abstract=1403916 or http://dx.doi.org/10.2139/ssrn.1403916

Jose Renato Haas Ornelas (Contact Author)

Banco Central do Brasil ( email )

P.O. Box 08670
SBS Quadra 3 Bloco B - Edificio-Sede
Brasilia, Distrito Federal 70074-900
Brazil

HOME PAGE: http://www.bcb.gov.br

Antonio F. A. Silva Jr.

Federal University of Bahia - UFBA ( email )

Av. Reitor Miguel Calmon, s/n
Vale do Canela
Salvador, Bahia
Brazil

Jose Luiz Barros Fernandes

Universidade de Brasília ( email )

Campus Universitário Darcy Ribeiro
Brasília, Distrito Federal 70910-900
Brazil

Register to save articles to
your library

Register

Paper statistics

Downloads
343
Abstract Views
1,586
rank
88,495
PlumX Metrics