University of California, Berkeley
Journal of Investment Strategies, Forthcoming
We introduce three new families of reward-risk ratios, study their properties and compare them to existing examples. All ratios in the three families are monotonic and quasi-concave, which means that they prefer more to less and encourage diversification. Members of the second family are also scale invariant. The third family is a subset of the second one, and all its members only depend on the distribution of a return. In the second part of the paper we provide an overview of existing reward-risk ratios and discuss their properties. For instance, we show that, like the Sharpe ratio, every reward-deviation ratio violates the monotonicity property.
Number of Pages in PDF File: 16
Keywords: Reward measures, risk measures, monotonicity, quasi-concavity, scale invariance, distribution based
JEL Classification: D81
Date posted: September 10, 2012 ; Last revised: November 25, 2013