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The mean-variance ratio test--A complement to the coefficient of variation test and the Sharpe ratio test

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  • Bai, Zhidong
  • Wang, Keyan
  • Wong, Wing-Keung

Abstract

To circumvent the limitations of the tests for coefficients of variation and Sharpe ratios, we develop the mean-variance ratio statistic for testing the equality of mean-variance ratios, and prove that our proposed statistic is the uniformly most powerful unbiased statistic. In addition, we illustrate the applicability of our proposed test for comparing the performances of stock indices.

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Bibliographic Info

Article provided by Elsevier in its journal Statistics & Probability Letters.

Volume (Year): 81 (2011)
Issue (Month): 8 (August)
Pages: 1078-1085

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Handle: RePEc:eee:stapro:v:81:y:2011:i:8:p:1078-1085

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Related research

Keywords: Coefficient of variation Sharpe ratio Mean-variance ratio Hypothesis testing Uniformly most powerful unbiased test;

References

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  1. Wong, Wing-Keung, 2007. "Stochastic dominance and mean-variance measures of profit and loss for business planning and investment," European Journal of Operational Research, Elsevier, vol. 182(2), pages 829-843, October.
  2. Oliver Linton & Esfandiar Maasoumi & Yoon-Jae Whang, 2003. "Consistent testing for stochastic dominance under general sampling schemes," LSE Research Online Documents on Economics 2208, London School of Economics and Political Science, LSE Library.
  3. Hamilton, James D. & Susmel, Raul, 1994. "Autoregressive conditional heteroskedasticity and changes in regime," Journal of Econometrics, Elsevier, vol. 64(1-2), pages 307-333.
  4. Hanoch, G & Levy, Haim, 1969. "The Efficiency Analysis of Choices Involving Risk," Review of Economic Studies, Wiley Blackwell, vol. 36(107), pages 335-46, July.
  5. Bai, Z. D. & Guo, Meihui, 1999. "A paradox in least-squares estimation of linear regression models," Statistics & Probability Letters, Elsevier, vol. 42(2), pages 167-174, April.
  6. Wong, Wing-Keung & Bian, Guorui, 2005. "Estimating parameters in autoregressive models with asymmetric innovations," Statistics & Probability Letters, Elsevier, vol. 71(1), pages 61-70, January.
  7. Jobson, J D & Korkie, Bob M, 1981. "Performance Hypothesis Testing with the Sharpe and Treynor Measures," Journal of Finance, American Finance Association, vol. 36(4), pages 889-908, September.
  8. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, 03.
  9. Egozcue, Martin & Wong, Wing-Keung, 2010. "Gains from diversification on convex combinations: A majorization and stochastic dominance approach," European Journal of Operational Research, Elsevier, vol. 200(3), pages 893-900, February.
  10. Wing-Keung Wong & Chenghu Ma, 2008. "Preferences over location-scale family," Economic Theory, Springer, vol. 37(1), pages 119-146, October.
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Cited by:
  1. Leung, Pui-Lam & Ng, Hon-Yip & Wong, Wing-Keung, 2012. "An improved estimation to make Markowitz’s portfolio optimization theory users friendly and estimation accurate with application on the US stock market investment," European Journal of Operational Research, Elsevier, vol. 222(1), pages 85-95.

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