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The performance of commodity trading advisors: A mean-variance-ratio test approach

Author

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  • Bai, Zhidong
  • Phoon, Kok Fai
  • Wang, Keyan
  • Wong, Wing-Keung

Abstract

In this paper, we provide evidence that the mean-variance-ratio (MVR) test is superior to the Sharpe ratio (SR) test by applying both tests to analyze the performance of commodity trading advisors (CTAs). Our findings show that while the SR test concludes that most of the CTA funds being analyzed are indistinguishable in their performance, the MVR statistic shows that some funds outperformed others. Moreover, the SR statistic indicates that one fund significantly outperformed another even when the difference between the two funds was insignificant or even changed directions over sub-periods. Conversely, the MVR statistic can detect such changes when they occur in the sub-periods. In addition, we have conducted simulations to show that the MVR test possesses good power.

Suggested Citation

  • Bai, Zhidong & Phoon, Kok Fai & Wang, Keyan & Wong, Wing-Keung, 2013. "The performance of commodity trading advisors: A mean-variance-ratio test approach," The North American Journal of Economics and Finance, Elsevier, vol. 25(C), pages 188-201.
    • Handle: RePEc:eee:ecofin:v:25:y:2013:i:c:p:188-201
    DOI: 10.1016/j.najef.2012.06.010
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    More about this item

    Keywords

    Sharpe ratio; Hypothesis testing; Uniformly most powerful unbiased test; Fund management;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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