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Comparing and selecting performance measures using rank correlations

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  • Caporin, Massimiliano
  • Lisi, Francesco

Abstract

The financial economics literature proposes dozens of performance measures to be used, for instance, to compare, analyse, rank and select assets. There is thus a problem: which measures should be considered? We extend the current literature by comparing a large set of performance measures over more than one thousand of equities included in the Standard & Poor's 1500 index. We evaluate performance measures by mean of rank correlations, exploiting the possible dynamic evolution of the rank correlations, and proposing a method for the identification of the subset of measures which are not equivalent. Our empirical study highlights that recent and more flexible measures provide different asset ranks compared to classical approaches, and that the set of equivalent performance measures is not stable over time. --

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File URL: http://dx.doi.org/10.5018/economics-ejournal.ja.2011-10
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Bibliographic Info

Article provided by Kiel Institute for the World Economy in its journal Economics: The Open-Access, Open-Assessment E-Journal.

Volume (Year): 5 (2011)
Issue (Month): 10 ()
Pages: 1-34

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Handle: RePEc:zbw:ifweej:201110

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Keywords: performance measurement; rank correlations; comparing performance measures;

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  1. Mossin, Jan, 1969. "Security Pricing and Investment Criteria in Competitive Markets," American Economic Review, American Economic Association, vol. 59(5), pages 749-56, December.
  2. Farinelli, Simone & Ferreira, Manuel & Rossello, Damiano & Thoeny, Markus & Tibiletti, Luisa, 2008. "Beyond Sharpe ratio: Optimal asset allocation using different performance ratios," Journal of Banking & Finance, Elsevier, vol. 32(10), pages 2057-2063, October.
  3. Ferson, Wayne E & Schadt, Rudi W, 1996. " Measuring Fund Strategy and Performance in Changing Economic Conditions," Journal of Finance, American Finance Association, vol. 51(2), pages 425-61, June.
  4. Sergio Ortobelli & Svetlozar T. Rachev & Stoyan Stoyanov & Frank J. Fabozzi & Almira Biglova, 2005. "The Proper Use Of Risk Measures In Portfolio Theory," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 8(08), pages 1107-1133.
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