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Unveiling the embedded coherence in divergent performance rankings

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  • Bosch-Badia, Maria Teresa
  • Montllor-Serrats, Joan
  • Tarrazon-Rodon, Maria-Antonia

Abstract

This paper focuses on analyzing functional relationships among performance measures, centered on the adjusted differential risk premium between the asset and the benchmark and on Sharpe-1994 ratio. First, we develop a risk normalization procedure for variance and Aumann–Serrano riskiness which turns contradictory rankings into coherent ones, and combines the effects of correlation and outliers into the analysis. On this basis, we deduce functional connections among performance measures, arriving at a new indicator which expresses performance as the addition of three effects due to Sharpe ratio, correlation and outliers. We show it is a strictly increasing function of Homm–Pigorsch ratio.

Suggested Citation

  • Bosch-Badia, Maria Teresa & Montllor-Serrats, Joan & Tarrazon-Rodon, Maria-Antonia, 2014. "Unveiling the embedded coherence in divergent performance rankings," Journal of Banking & Finance, Elsevier, vol. 42(C), pages 154-165.
    • Handle: RePEc:eee:jbfina:v:42:y:2014:i:c:p:154-165
    DOI: 10.1016/j.jbankfin.2014.01.015
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    References listed on IDEAS

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    More about this item

    Keywords

    Performance measures; Coherent rankings; MSquared; Homm–Pigorsch ratio;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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