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Classic performance indexes revisited: axiomatic and applications

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  • Fernando Gómez-Bezares
  • Fernando R. Gómez-Bezares

Abstract

In this short article we revisit three classic performance indexes: Sharpe, Treynor and Jensen, adding a fourth index, the Penalized Internal Rate of Return (PIRR), which is perfectly coherent with those three. We propose some axioms that support the logic of these indexes, identifying one exception for the Treynor index and warning about the problems of quotients use. All these are empirically supported.

Suggested Citation

  • Fernando Gómez-Bezares & Fernando R. Gómez-Bezares, 2012. "Classic performance indexes revisited: axiomatic and applications," Applied Economics Letters, Taylor & Francis Journals, vol. 19(5), pages 467-470, March.
    • Handle: RePEc:taf:apeclt:v:19:y:2012:i:5:p:467-470
    DOI: 10.1080/13504851.2011.583211
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    References listed on IDEAS

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    1. Michael C. Jensen, 1968. "The Performance Of Mutual Funds In The Period 1945–1964," Journal of Finance, American Finance Association, vol. 23(2), pages 389-416, May.
    2. Jensen, Michael C, 1969. "Risk, The Pricing of Capital Assets, and the Evaluation of Investment Portfolios," The Journal of Business, University of Chicago Press, vol. 42(2), pages 167-247, April.
    3. Charles Hodges & Walton Taylor & James Yoder, 2003. "Beta, the Treynor ratio, and long-run investment horizons," Applied Financial Economics, Taylor & Francis Journals, vol. 13(7), pages 503-508.
    4. Eugene F. Fama & Kenneth R. French, 2010. "Luck versus Skill in the Cross‐Section of Mutual Fund Returns," Journal of Finance, American Finance Association, vol. 65(5), pages 1915-1947, October.
    5. Choong Tze Chua & Winston Koh, 2007. "Measuring investment skills of fund managers," Applied Financial Economics, Taylor & Francis Journals, vol. 17(16), pages 1359-1368.
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