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A Performance Measure of Zero-Dollar Long/Short Equally Weighted Portfolios

Author

Listed:
  • Monica Billio

    (University of Ca’ Foscari [Venice, Italy])

  • Ludovic Calès

    (University of Ca’ Foscari [Venice, Italy], CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Dominique Guegan

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

Abstract

Sharpe-like ratios have been traditionally used to measure the performances of portfolio managers. However, they suffer two intricate drawbacks (1) they are relative to a perr's performance and (2) the best score is generally assumed to correspond to a "good" portfolio allocation, with no guarantee on the goodness of this allocation. In this paper, we propose a new measure to quantify the goodness of an allocation and we show how to estimate this measure in the case of the strategy used to track the momentum effect, namely the Zero-Dollar Long/Short Equally Weighted (LSEW) investment strategy. Finally, we show how to use this measure to timely close the positions of an invested portfolio.

Suggested Citation

  • Monica Billio & Ludovic Calès & Dominique Guegan, 2010. "A Performance Measure of Zero-Dollar Long/Short Equally Weighted Portfolios," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00476038, HAL.
    • Handle: RePEc:hal:cesptp:halshs-00476038
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00476038v1
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    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory
    • C46 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Specific Distributions

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