Adjusted Sharpe Ratio: Some Caveats

10 Pages Posted: 8 Dec 2018

See all articles by Didier Maillard

Didier Maillard

Conservatoire National des Arts et Métiers (CNAM); Amundi Asset Management

Date Written: November 14, 2018

Abstract

Researchers and investors are concerned with the shortcomings of various measures of portfolio management performances, among them the famous Sharpe ratio. In particular, the Sharpe ratio does not give due consideration to tail risk: negative skewness and fat tails, which justly are a matter of concern for investors.

Various ways of correcting the Sharpe ratio have been proposed and continue to be proposed. One of them is the concept of Adjusted Sharpe Ratio (ASR) which gives a performance measure easy to compute from the basic statistics of returns.

The aim of this paper is to trace back the derivation of this formula and stress the assumptions and approximations needed for obtaining it. Those caveats should be kept in mind when using the ASR.

Keywords: Sharpe ratio, performance measures, tail risk

JEL Classification: C10, G11, G17

Suggested Citation

Maillard, Didier, Adjusted Sharpe Ratio: Some Caveats (November 14, 2018). Available at SSRN: https://ssrn.com/abstract=3284396 or http://dx.doi.org/10.2139/ssrn.3284396

Didier Maillard (Contact Author)

Conservatoire National des Arts et Métiers (CNAM) ( email )

292, rue Saint-Martin
Paris cedex 03, 75141
France

Amundi Asset Management ( email )

90 Boulevard Pasteur
Paris, 75015
France

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