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A performance measure of Zero-dollar Long/Short equally weighted portfolios




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

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  • Monica Billio & Ludovic Calès & Dominique Guegan, 2010. "A performance measure of Zero-dollar Long/Short equally weighted portfolios," Documents de travail du Centre d'Economie de la Sorbonne 10030, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  • Handle: RePEc:mse:cesdoc:10030

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    References listed on IDEAS

    1. Andersen, Torben G & Bollerslev, Tim, 1998. "Answering the Skeptics: Yes, Standard Volatility Models Do Provide Accurate Forecasts," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 885-905, November.
    2. Banz, Rolf W., 1981. "The relationship between return and market value of common stocks," Journal of Financial Economics, Elsevier, vol. 9(1), pages 3-18, March.
    3. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Paul Labys, 2003. "Modeling and Forecasting Realized Volatility," Econometrica, Econometric Society, vol. 71(2), pages 579-625, March.
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    More about this item


    Portfolio management; performance measure; generalized hyperbolic distribution;

    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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