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Sharpe Portfolio Using a Cross-Efficiency Evaluation

In: Data Science and Productivity Analytics

Author

Listed:
  • Mercedes Landete

    (University Miguel Hernandez)

  • Juan F. Monge

    (University Miguel Hernandez)

  • José L. Ruiz

    (University Miguel Hernandez)

  • José V. Segura

    (University Miguel Hernandez)

Abstract

The Sharpe ratio is a way to compare the excess returns (over the risk-free asset) of portfolios for each unit of volatility that is generated by a portfolio. In this paper, we introduce a robust Sharpe ratio portfolio under the assumption that the risk-free asset is unknown. We propose a robust portfolio that maximizes the Sharpe ratio when the risk-free asset is unknown, but is within a given interval. To compute the best Sharpe ratio portfolio, all the Sharpe ratios for any risk-free asset are considered and compared by using the so-called cross-efficiency evaluation. An explicit expression of the Cross-Efficiency Sharpe Ratio portfolio is presented when short selling is allowed.

Suggested Citation

  • Mercedes Landete & Juan F. Monge & José L. Ruiz & José V. Segura, 2020. "Sharpe Portfolio Using a Cross-Efficiency Evaluation," International Series in Operations Research & Management Science, in: Vincent Charles & Juan Aparicio & Joe Zhu (ed.), Data Science and Productivity Analytics, chapter 0, pages 415-439, Springer.
    • Handle: RePEc:spr:isochp:978-3-030-43384-0_15
    DOI: 10.1007/978-3-030-43384-0_15
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