Drawdown Measures: Are They All the Same?

27 Pages Posted: 4 Nov 2019 Last revised: 7 Nov 2019

See all articles by Olaf Korn

Olaf Korn

University of Goettingen (Gottingen)

Philipp M. Möller

University of Goettingen (Gottingen)

Christian Schwehm

Quoniam Asset Management GmbH

Date Written: October 17, 2019

Abstract

Over the years, a diverse range of drawdown measures has evolved to guide asset management. We show that almost all of these measures fit into a unified framework. This new framework simplifies the implementation of drawdown measures and improves understanding their similarities and differences. Conceptual differences between drawdown measures translate into different rankings of portfolios, which we document in a simulation study. Our research also shows that all drawdown measures can (to some degree) discriminate between skillful and unskillful portfolio managers, but differ in terms of accuracy. However, the ability to detect skill does not easily improve performance ratios where drawdown measures serve as the denominator. In conclusion, our study shows that the choice of an adequate drawdown measure is vital to the assessment of investments because different measures emphasize different aspects of risk.

Keywords: Asset Management, Drawdown, Risk Measures, Performance Measurement

JEL Classification: G11

Suggested Citation

Korn, Olaf and Möller, Philipp M. and Schwehm, Christian, Drawdown Measures: Are They All the Same? (October 17, 2019). Available at SSRN: https://ssrn.com/abstract=3473694

Olaf Korn

University of Goettingen (Gottingen) ( email )

Platz der Gottinger Sieben 3
Gottingen, D-37073
Germany
++49 551 39 7265 (Phone)
++49 551 39 7665 (Fax)

Philipp M. Möller (Contact Author)

University of Goettingen (Gottingen) ( email )

Platz der Gottinger Sieben 3
Gottingen, D-37073
Germany
+49 551 39 21169 (Phone)
+49 551 39 7665 (Fax)

Christian Schwehm

Quoniam Asset Management GmbH ( email )

Frankfurt
Germany
++496974384267 (Phone)

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