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Primary Article

The Symmetric Downside-Risk Sharpe Ratio

William T. Ziemba
The Journal of Portfolio Management Fall 2005, 32 (1) 108-122; DOI: https://doi.org/10.3905/jpm.2005.599515
William T. Ziemba
The alumni professor of financial modeling and stochastic optimization emeritus at the Sauder School of Business of the University of British Columbia in Vancouver, Canada, and a visiting professor of finance at the Sloan School of Management of the Massachusetts Institute of Technology in Cambridge, MA.
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Abstract

The Sharpe ratio, a most useful measure of investment performance, has the disadvantage that it is based on mean-variance theory and thus is valid basically only for quadratic preferences or normal distributions. Hence skewed investment returns can engender misleading conclusions. This is especially true for superior investors with a number of high returns. Many of these superior investors use capital growth wagering ideas to implement their strategies, which means higher growth rates but also higher variability of wealth. A simple modification of the Sharpe ratio to assume that the upside deviation is identical to the downside risk gives more realistic results.

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The Journal of Portfolio Management
Vol. 32, Issue 1
Fall 2005
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The Symmetric Downside-Risk Sharpe Ratio
William T. Ziemba
The Journal of Portfolio Management Oct 2005, 32 (1) 108-122; DOI: 10.3905/jpm.2005.599515

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The Symmetric Downside-Risk Sharpe Ratio
William T. Ziemba
The Journal of Portfolio Management Oct 2005, 32 (1) 108-122; DOI: 10.3905/jpm.2005.599515
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