Investor-Specific Performance Measurement : A Justification of Sharpe Ratio and Treynor Ratio

This article defines the investor-specific performance measure ISM necessary for investors in practically relevant decision situations. In such situations a typical investor creates an overall portfolio consisting of three parts: an arbitrary fund, a risk-free asset and an existing, fixed portfolio. Since the ISM is considerably defined by the Sharpe ratio and the Treynor ratio, an economic justification of these traditional performance measures is also presented here