Unveiling the embedded coherence in divergent performance rankings |
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| Institution: | 1. University of California, Santa Barbara and Federal Reserve Bank of New York, United States;2. Oxford Institute for Energy Studies, A Recognised Independent Centre of the University of Oxford, United Kingdom;3. International Monetary Fund, United States;1. Business School, Korea University, Seoul, Republic of Korea;2. Graduate School of Finance, Korea Advanced Institute of Science and Technology (KAIST), Seoul, Republic of Korea;3. Institute of Financial Analysis, University of Neuchatel, Neuchatel, Switzerland;1. College of Management, Innovation Center for Big Data and Digital Convergence, Yuan Ze University, Chung-Li, Taiwan;2. School of Accounting, Economics, and Finance, Deakin University, Burwood, Victoria, Australia;3. Department of Finance, National University of Kaohsiung, Kaohsiung, Taiwan;1. Cass Business School, City University, London EC1Y 8TZ, UK;2. ALBA Graduate Business School, Athens 16671, Greece;3. School of Management, University of Bath, Bath BA2 7AY, UK;1. MIT Sloan School of Management, United States;2. Federal Reserve Bank of Boston, United States;1. The Research Institute of Economics and Management, Southwestern University of Finance and Economics Chengdu, Sichuan 610074, PR China;2. Department of Finance, College of Business, University of Texas at San Antonio, San Antonio, TX 78249, United States |
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| Abstract: | This paper focuses on analyzing functional relationships among performance measures, centered on the adjusted differential risk premium between the asset and the benchmark and on Sharpe-1994 ratio. First, we develop a risk normalization procedure for variance and Aumann–Serrano riskiness which turns contradictory rankings into coherent ones, and combines the effects of correlation and outliers into the analysis. On this basis, we deduce functional connections among performance measures, arriving at a new indicator which expresses performance as the addition of three effects due to Sharpe ratio, correlation and outliers. We show it is a strictly increasing function of Homm–Pigorsch ratio. |
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| Keywords: | Performance measures Coherent rankings MSquared Homm–Pigorsch ratio |
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