A Jigsaw Puzzle of Basic Risk-Adjusted Performance Measures

The Journal of Performance Measurement, Vol. 9, No. 3, pp. 57-64, Spring 2005

Posted: 18 Mar 2011

See all articles by Hendrik Scholz

Hendrik Scholz

Friedrich-Alexander-Universität Erlangen-Nürnberg

Marco Wilkens

University of Augsburg

Date Written: March 17, 2011

Abstract

In 1997, Modigliani and Modigliani developed the risk-adjusted performance measure RAP (often called M-squared) which is by now widely accepted in theory and practice. Their measure has further increased investors¿ awareness of risk-adjusted performance measurement. However, this measure uses the standard deviation as the relevant measure of risk, and, therefore, is relevant only to investors who invest their entire savings into a single fund. In this article the authors present a jigsaw puzzle of basic risk-adjusted performance measures which helps to better understand the key links between these measures. In doing so they include a hardly known measure: the market risk-adjusted performance (MRAP). While closely related to the Modigliani measure, the MRAP measures returns relative to market risk instead of total risk. Thus, the MRAP is suitable for investors who invest in many different assets.

Keywords: portfolio performance evaluation, mutual funds, Sharpe ratio, Treynor ratio, RAP

JEL Classification: G11

Suggested Citation

Scholz, Hendrik and Wilkens, Marco, A Jigsaw Puzzle of Basic Risk-Adjusted Performance Measures (March 17, 2011). The Journal of Performance Measurement, Vol. 9, No. 3, pp. 57-64, Spring 2005. Available at SSRN: https://ssrn.com/abstract=883606

Hendrik Scholz (Contact Author)

Friedrich-Alexander-Universität Erlangen-Nürnberg ( email )

Lange Gasse 20
Lange Gasse 20,
Nürnberg, 90403
Germany

Marco Wilkens

University of Augsburg ( email )

Universitaetsstr. 16
Augsburg, 86159
Germany
+49 821 598 4124 (Phone)
+49 821 598 4223 (Fax)

HOME PAGE: http://www.wiwi.uni-augsburg.de/bwl/wilkens/team/wilkens_marco/

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