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The Efficacy of the Sortino Ratio and Other Benchmarked Performance Measures Under Skewed Return Distributions

Author

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  • Ashraf Chaudhry

    (Queensland Investment Corporation, Brisbane, QLD, 4001.)

  • Helen L. Johnson

    (Queensland University of Technology, Brisbane, QLD, 4001.)

Abstract

This paper will investigate the suitability of existing performance measures under the assumption of a clearly defined benchmark. A range of measures are examined including the Sortino Ratio, the Sharpe Selection ratio (SSR), the Student's t-test and a decay rate measure. A simulation study is used to assess the power and bias of these measures based on variations in sample size and mean performance of two simulated funds. The Sortino Ratio is found to be the superior performance measure exhibiting more power and less bias than the SSR when the distribution of excess returns are skewed.

Suggested Citation

  • Ashraf Chaudhry & Helen L. Johnson, 2008. "The Efficacy of the Sortino Ratio and Other Benchmarked Performance Measures Under Skewed Return Distributions," Australian Journal of Management, Australian School of Business, vol. 32(3), pages 485-502, March.
    • Handle: RePEc:sae:ausman:v:32:y:2008:i:3:p:485-502
    DOI: 10.1177/031289620803200306
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    References listed on IDEAS

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    1. Bawa, Vijay S. & Lindenberg, Eric B., 1977. "Capital market equilibrium in a mean-lower partial moment framework," Journal of Financial Economics, Elsevier, vol. 5(2), pages 189-200, November.
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    Cited by:

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    2. Petr Kupčík & Pavel Gottwald, 2016. "The Return-risk Performance of Selected Pension Fund in OECD with Focus on the Czech Pension System," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 64(6), pages 1981-1988.

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