The Dutch Triangle

Abstract

This article offers a framework for a new performance measure based on behavioral finance theory. The authors argue that the average return above a designated minimal acceptable return is a proxy for upside potential, a valuable new way of measuring return. Style analysis is a very important factor. Unlike the information ratio, however, the “upside potential ratio” that the authors propose does not penalize the manager for performance above the mangers' benchmark An analysis of Dutch mutual funds indicates this approach is applicable to small markets as well as large markets.