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A Second-order Monotone Modification of the Sharpe Ratio

In: RECENT ADVANCES IN FINANCIAL ENGINEERING 2014 Proceedings of the TMU Finance Workshop 2014

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  • Mikhail Zhitlukhin

Abstract

The Sharpe ratio is not monotone: an investment strategy which yields a higher return may have a lower Sharpe ratio. This may lead to suboptimal investment decisions.In this paper we present a modification of the Sharpe ratio, which is monotone with respect to second-order stochastic dominance. We study its properties and obtain a representation which allows to compute it in an efficient way.

Suggested Citation

  • Mikhail Zhitlukhin, 2016. "A Second-order Monotone Modification of the Sharpe Ratio," World Scientific Book Chapters, in: Masaaki Kijima & Yukio Muromachi & Takashi Shibata (ed.), RECENT ADVANCES IN FINANCIAL ENGINEERING 2014 Proceedings of the TMU Finance Workshop 2014, chapter 10, pages 217-226, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789814730778_0010
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    Cited by:

    1. Mikhail Zhitlukhin, 2018. "Monotone Sharpe ratios and related measures of investment performance," Papers 1809.10193, arXiv.org, revised May 2021.

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