Nielsen, Lars Tyge; Vassalou, Maria - In: Journal of Financial and Quantitative Analysis 39 (2004) 01, pp. 103-114
This paper proposes modified versions of the Sharpe ratio and Jensen's alpha, which are appropriate in a simple continuous-time model. Both are derived from optimal portfolio selection. The modified Sharpe ratio equals the ordinary Sharpe ratio plus half of the volatility of the fund. The...