Asset Performance Evaluation with the Mean-Variance Ratio

29 Pages Posted: 8 May 2006 Last revised: 20 Oct 2016

See all articles by Zhidong Bai

Zhidong Bai

Northeast Normal University

Kok Fai Phoon

SIM University

Keyan Wang

Northeast Normal University

Wing-Keung Wong

Asia University, Department of Finance

Date Written: July 10, 2011

Abstract

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

Bai, Zhidong and Phoon, Kok Fai and Wang, Keyan and Wong, Wing-Keung, Asset Performance Evaluation with the Mean-Variance Ratio (July 10, 2011). Available at SSRN: https://ssrn.com/abstract=900973 or http://dx.doi.org/10.2139/ssrn.900973

Zhidong Bai (Contact Author)

Northeast Normal University ( email )

Changchun
China

Kok Fai Phoon

SIM University ( email )

School of Business
461 Clementi Road
Singapore, 599491
Singapore

Keyan Wang

Northeast Normal University ( email )

Changchun
China

Wing-Keung Wong

Asia University, Department of Finance ( email )

Taiwan
Taiwan

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