On the Use of Standard Performance Measures in Assessing Alternative Investment Strategies - Part I
9 Pages Posted: 27 Jun 2015 Last revised: 30 Jun 2015
Date Written: June 21, 2001
This paper touches upon the quantitative and modeling shortfalls of the Sharpe ratio and other related Capital Asset Pricing Model (CAPM) measures when used to evaluate alternative investments. These shortfalls can best be appreciated once one understands the common nature of how most alternative investment strategies earn their returns. And surprisingly, once one understands the source of a program’s returns, even an investment with a Sharpe ratio of .19 could win a place in an investor’s portfolio based on certain return-to-risk considerations.
Keywords: alternative investments, CAPM, Sharpe ratio, risk measurement, returns
JEL Classification: G10, G11, G23
Suggested Citation: Suggested Citation