Conditional Sharpe Ratios

Victor Chow

West Virginia University

Christine W. Lai

Yuan Ze University

August 31, 2014

This article demonstrate the connection between Sharpe ratio and stochastic dominance. Conditional Sharpe ratios (CSR) are statistical ordinates of conditional stochastic dominance (CSD) that measure lower partial risk-adjusted excess returns of an asset with respect to return distribution on the benchmark. A multiple comparison of serial CSR statistics thus provides an overall view of portfolio performance corresponding to different market scenarios. An example demonstrates that CSR is able to discriminate funds' downside performance which the conventional Sharpe ratio generally fails to do. A large out-of-sample analysis of US mutual fund shows that CSR has predictability for portfolio future performance.

Number of Pages in PDF File: 23

Keywords: Sharp ratio, information ratio, portfolio management, stochastic dominance

JEL Classification: G11

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Date posted: September 2, 2014  

Suggested Citation

Chow, Victor and Lai, Christine W., Conditional Sharpe Ratios (August 31, 2014). Available at SSRN: https://ssrn.com/abstract=2489764 or http://dx.doi.org/10.2139/ssrn.2489764

Contact Information

Victor Chow (Contact Author)
West Virginia University ( email )
P. O. Box 6025
Morgantown, WV 26506
United States
Christine W. Lai
Yuan Ze University ( email )
135, Far-East Rd., Chung-Li
Taoyuan, ROC
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