An Evaluation of Risk and Return Performance Measure Alternatives : Evidence from Real Estate Mutual Funds

This paper examines the appropriate measure of performance for real estate mutual funds. Several popular performance measures including Sharpe, Treynor and Sortino measures are evaluated. The results demonstrate that the Sharpe index outperforms the other two alternatives. In order to consider these various methods as consistent, a certain degree of agreement in rankings between the measurements should exist. The concordance correlation coefficient (CCC) is an index that assesses the strength of agreement between rankings and it has been widely applied in situations in which ranking measurements are made. This research aims to explore the consistency of the risk-adjusted performance between the Sharpe index, the Treynor index, and the Sortino ratio. Mutual funds within the Real Estate sector are analyzed using the CCC to determine if the various rankings of the three different risk/return measurements are significantly different. This analysis is an attempt to determine which measure of risk-adjusted returns may be a better indicator of overall performance based on ex-post data. The data considered extends for a ten-year period from 2007 to 2016 and results suggest that the Sharpe Ratio outperforms the Treynor index and the Sortino ratio in determining the risk-adjusted performance of real estate mutual funds