Testing Equality of Modified Sharpe Ratios

12 Pages Posted: 31 Oct 2014 Last revised: 15 Nov 2017

See all articles by David Ardia

David Ardia

HEC Montreal - Department of Decision Sciences

Kris Boudt

Ghent University; Vrije Universiteit Brussel; Vrije Universiteit Amsterdam

Date Written: February 1, 2015

Abstract

The modified Sharpe ratio is commonly used to evaluate the risk-adjusted performance of an investment with non-normal returns, such as hedge funds. In this note, a test for equality of modified Sharpe ratios of two investments is developed. A simulation study demonstrates the good size and power properties of the test. An application illustrates the complementarity between the Sharpe ratio and modified Sharpe ratio test for performance testing on hedge fund return data.

Keywords: bootstrap test, hedge fund, modified Sharpe ratio, non-normal returns, performance measurement

JEL Classification: C12, C22, C52

Suggested Citation

Ardia, David and Boudt, Kris, Testing Equality of Modified Sharpe Ratios (February 1, 2015). Finance Research Letters, Vol.13, pp. 97-104, May 2015, Available at SSRN: https://ssrn.com/abstract=2516591 or http://dx.doi.org/10.2139/ssrn.2516591

David Ardia (Contact Author)

HEC Montreal - Department of Decision Sciences ( email )

3000 Côte-Sainte-Catherine Road
Montreal, QC H2S1L4
Canada

Kris Boudt

Ghent University ( email )

Sint-Pietersplein 5
Gent, 9000
Belgium

Vrije Universiteit Brussel ( email )

Pleinlaan 2
http://www.vub.ac.be/
Brussels, 1050
Belgium

Vrije Universiteit Amsterdam ( email )

De Boelelaan 1105
Amsterdam, ND North Holland 1081 HV
Netherlands

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