Asset Performance Evaluation with the Mean-Variance Ratio
29 Pages Posted: 8 May 2006 Last revised: 20 Oct 2016
Date Written: July 10, 2011
Bai, et al. (2011c) develop the mean-variance-ratio (MVR) statistic to test the performance among assets for small samples. They provide theoretical reasoning to use MVR and prove that our proposed statistic is uniformly most powerful unbiased. In this paper we illustrate the superiority of our proposed test over the Sharpe ratio (SR) test by applying both tests to analyze the performance of Commodity Trading Advisors (CTAs). Our findings show that while the SR test concludes most of the CTA funds being analyzed as being indistinguishable in their performance, our proposed statistics show that some funds outperform the others. On the other hand, when we apply the SR statistic on some other funds in which the recent difference between the two funds is insignificant and even changes directions, the SR statistic indicates that one fund is significantly outperforming another fund whereas the MVR statistic could detect the change.
Keywords: Sharpe ratio, performance hypothesis testing, Normal distribution, uniformly most powerful unbiased test, CTA funds
JEL Classification: G11, C13
Suggested Citation: Suggested Citation