RT Journal Article
SR Electronic
T1 A Case for Tail-Risk-Based Sharpe Ratios
JF The Journal of Portfolio Management
FD Institutional Investor Journals
SP 114
OP 125
DO 10.3905/jpm.2018.44.3.114
VO 44
IS 3
A1 James X. Xiong
A1 Thomas M. Idzorek
YR 2018
UL https://pm-research.com/content/44/3/114.abstract
AB Surprisingly to many investors, low volatility tends to be accompanied with an undesirable risk characteristic: lower or negative skewness. A stock or fund can rank well based on the standard Sharpe ratio but low on enhanced tail-risk-based Sharpe ratios that account for non-normal returns, and vice versa. The authors quantify these economically meaningful ranking differences and show that skewness dominates other variables in explaining the ranking variations for the Conditional Value-at-Risk (CVaR)-based Sharpe ratio. Both skewness and serial correlation play important roles in the ranking variations for the maximum drawdown-based Sharpe ratio. TOPICS: Analysis of individual factors/risk premia, VAR and use of alternative risk measures of trading risk