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The use of the bootstrap method for the assessment of investment effectiveness and risk – the case of confidence intervals estimation for the Sharpe ratio and TailVaR

Author

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  • Klaudia Jarno

    (Poznañ University of Economics and Business, al. Niepodleg³oœci 10, 61-875 Poznañ, Poland)

  • £ukasz Smaga

    (Adam Mickiewicz University, Faculty of Mathematics and Computer Science, ul. Uniwersytetu Poznañskiego 4, 61-614 Poznañ, Poland)

Abstract

This paper is aimed at presenting application of bootstrap interval estimation methods to the assessment of financial investment’s effectiveness and risk. At first, we give an overview of various methods of bootstrap confidence interval estimation, i.e. bootstrap-t interval, percentile interval and BCa interval. Then, bootstrap confidence interval estimation methods are used to estimate confidence intervals for the Sharpe ratio and TailVaR of the Warsaw Stock Exchange sectoral indices. The results show that the bootstrap confidence intervals of different types are quite similarly positioned for each of the analysed index and measure. Taking into the account the locations of confidence intervals for both the Sharpe ratio and TailVaR, the real estate sector tends to be the most advantageous from the investor’s viewpoint.

Suggested Citation

  • Klaudia Jarno & £ukasz Smaga, 2020. "The use of the bootstrap method for the assessment of investment effectiveness and risk – the case of confidence intervals estimation for the Sharpe ratio and TailVaR," Journal of Banking and Financial Economics, University of Warsaw, Faculty of Management, vol. 1(13), pages 40-50, June.
    • Handle: RePEc:sgm:jbfeuw:v:1:y:2020:i:13:p:40-50
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    More about this item

    Keywords

    Bootstrap; confidence intervals; Sharpe ratio; TailVaR; stock market index;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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