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

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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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    Cited by:

    1. Hammoudeh, Shawkat & McAleer, Michael, 2013. "Risk management and financial derivatives: An overview," The North American Journal of Economics and Finance, Elsevier, vol. 25(C), pages 109-115.
    2. Chia-Lin Chang & Michael McAleer & Wing-Keung Wong, 2018. "Big Data, Computational Science, Economics, Finance, Marketing, Management, and Psychology: Connections," Journal of Risk and Financial Management, MDPI, Open Access Journal, vol. 11(1), pages 1-29, March.
    3. Guo, Xu & Wong, Wing-Keung & Zhu, Lixing, 2013. "Two-moment decision model for location-scale family with background asset," MPRA Paper 43864, University Library of Munich, Germany.
    4. repec:ids:ijrevm:v:10:y:2018:i:2:p:146-167 is not listed on IDEAS
    5. Guo, Xu & McAleer, Michael & Wong, Wing-Keung & Zhu, Lixing, 2017. "A Bayesian approach to excess volatility, short-term underreaction and long-term overreaction during financial crises," The North American Journal of Economics and Finance, Elsevier, vol. 42(C), pages 346-358.
    6. Chia-Lin Chang & Michael McAleer & Wing-Keung Wong, 2016. "Management science, economics and finance: A connection," Documentos de Trabajo del ICAE 2016-07, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
    7. Blankenberg, Ann-Kathrin & Gottschalk, Jonas F. A., 2018. "Is socially responsible investing (SRI) in stocks a competitive capital investment? A comparative analysis based on the performance of sustainable stocks," Center for European, Governance and Economic Development Research Discussion Papers 349, University of Goettingen, Department of Economics.
    8. Wing-Keung Wong & Sheung-Chi Chow & Tai-Yuen Hon & Kai-Yin Woo, 2018. "Empirical study on conservative and representative heuristics of Hong Kong small investors adopting momentum and contrarian trading strategies," International Journal of Revenue Management, Inderscience Enterprises Ltd, vol. 10(2), pages 146-167.
    9. Huang, Hung-Hsi & Wang, Ching-Ping, 2013. "Portfolio selection and portfolio frontier with background risk," The North American Journal of Economics and Finance, Elsevier, vol. 26(C), pages 177-196.
    10. Chia-Lin Chang & Michael McAleer & Wing-Keung Wong, 2018. "Decision Sciences, Economics, Finance, Business, Computing, and Big Data: Connections," Tinbergen Institute Discussion Papers 18-024/III, Tinbergen Institute.
    11. Niu, Cuizhen & Wong, Wing-Keung & Xu, Qunfang, 2017. "Higher-Order Risk Measure and (Higher-Order) Stochastic Dominance," MPRA Paper 75948, University Library of Munich, Germany.

    More about this item

    Keywords

    Sharpe ratio; Hypothesis testing; Uniformly most powerful unbiased test; Fund management;

    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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