Main academic criticism on the Sharpe ratio concerns its lack in incorporating skewness in performance evaluation. In this paper we rewrite the classical Sharpe ratio for skew normal distributions. This new skew-normal Shape ratio consistently moves with skewness and no distorted information on performance is provided. An empirical investigation illustrates skew-normality of mutual and hedge fund returns. When investors are concerned about skewness, the use of the skew-normal Sharpe ratio thus seems a proper choice for making performance rankings.

Sharpe Ratio for skew-normal distributions: a skewness-dependent performance trade-off?

TIBILETTI, Luisa
2010-01-01

Abstract

Main academic criticism on the Sharpe ratio concerns its lack in incorporating skewness in performance evaluation. In this paper we rewrite the classical Sharpe ratio for skew normal distributions. This new skew-normal Shape ratio consistently moves with skewness and no distorted information on performance is provided. An empirical investigation illustrates skew-normality of mutual and hedge fund returns. When investors are concerned about skewness, the use of the skew-normal Sharpe ratio thus seems a proper choice for making performance rankings.
2010
14
4
34
48
http://spgshop.com/sharperatioforskew-normaldistributionsaskewness-dependentperformancetrade-off.aspx
Asset allocation; Sharpe Ratio; Azzalini’s skewness coefficient; Skew-normal
Martin Eling; Luisa Tibiletti
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/2318/77624
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