Conditional Sharpe Ratios

Victor Chow, Christine W. Lai

Research output: Contribution to journalArticle

9 Citations (Scopus)

Abstract

Facing investment choices, investors may care more about potentially excess losses in a downtrend market than excess gains in an upside market. Conditional Sharpe ratios (. CSR) are statistical ordinates of conditional stochastic dominance (. CSD) that measure lower partial risk-adjusted excess returns of an asset with respect to return distribution on the benchmark. A multiple comparison of serial CSR statistics thus provides an overall view of portfolio performance corresponding to different market scenarios. An example demonstrates that CSR is able to discriminate funds' downside performance which the conventional Sharpe ratio generally fails to do. A large out-of-sample analysis of US mutual fund shows that CSR has predictability for portfolio future performance.

Original languageEnglish
Pages (from-to)117-133
Number of pages17
JournalFinance Research Letters
Volume12
DOIs
Publication statusPublished - 2015 Feb 1

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Sharpe ratio
Corporate Social Responsibility
Multiple comparisons
Serials
Mutual funds
Portfolio performance
Investors
Scenarios
Excess returns
Return distribution
Predictability
Investment choice
Stochastic dominance
Benchmark
Assets
Statistics

Keywords

  • Conditional sharpe ratio
  • Conditional stochastic dominance
  • Down-side risk
  • Information ratio
  • Portfolio choice
  • Sharp ratio

ASJC Scopus subject areas

  • Finance

Cite this

Conditional Sharpe Ratios. / Chow, Victor; Lai, Christine W.

In: Finance Research Letters, Vol. 12, 01.02.2015, p. 117-133.

Research output: Contribution to journalArticle

Chow, Victor ; Lai, Christine W. / Conditional Sharpe Ratios. In: Finance Research Letters. 2015 ; Vol. 12. pp. 117-133.
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