IDEAS home Printed from https://ideas.repec.org/a/ris/jofitr/1454.html
   My bibliography  Save this article

Hedge Funds Performance Ratios Adjusted to Market Liquidity Risk

Author

Listed:

Abstract

Market liquidity is complex to measure empirically. This explains why there is no consensus about performance ratios adjusted to its risk. We summarize market liquidity by two major characteristics: a costly one because of the loss of the illiquidity premium; and a profitable one when investors can withdraw when they want. In this paper, three new performance indicators are proposed to integrate, to a certain extent, market liquidity risk, especially for hedge funds investment: liquidity-loss ratio will capture the cost characteristic whereas liquidity-Sharpe ratio and liquidity-profit ratio will represent the profitable alternative. These new ratios try to be simple and precise enough to help investors choose between hedge funds strategies according to their liquidity profile: do they want to capture illiquidity risk premium, or do they want to be free to withdraw?

Suggested Citation

  • Clauss, Pierre, 2011. "Hedge Funds Performance Ratios Adjusted to Market Liquidity Risk," Journal of Financial Transformation, Capco Institute, vol. 31, pages 133-139.
  • Handle: RePEc:ris:jofitr:1454
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    More about this item

    Keywords

    Market liquidity risk; Hedge funds; Sharpe ratio; Information ratio; Kalman Filter; Momentum.;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ris:jofitr:1454. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Prof. Shahin Shojai) or (Rebekah McClure). General contact details of provider: http://www.capco.com/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.