Journal of Investment Strategies, Forthcoming
16 Pages Posted: 10 Sep 2012 Last revised: 25 Nov 2013
Date Written: October 2013
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.
Keywords: Reward measures, risk measures, monotonicity, quasi-concavity, scale invariance, distribution based
JEL Classification: D81
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