In a recent article, Schuster and Auer (2012) show that fund managers with a certain positive performance need to be aware of the fact that too high prospective excess returns can lower the empirical Sharpe ratio of their funds. In this note, we investigate the empirical relevance of this...

Generating a high positive excess return in a prospective period does not necessarily increase the empirical Sharpe ratio of an investment fund. Therefore, we derive a critical range in which prospective excess returns must lie in order to increase its empirical Sharpe ratio. We also give a...

In this article, we analyse whether the class of adequately defined drawdown-based performance measures produces hedge fund rankings similar to the one that can be obtained using the Sharpe ratio. Supported by a series of robustness checks, we find that the choice of performance measure does not...

As recent research highlights that the Sharpe ratio has a decision theoretic foundation even in the case of asymmetric or fat-tailed excess returns and thus is adequate even for the evaluation of hedge funds, this note provides the first Sharpe ratio based performance analysis of the hedge fund...

It is now well known that the Sharpe ratio and other related reward-to-risk measures may be manipulated with option-like strategies. In this paper we derive the general conditions for achieving the maximum expected Sharpe ratio. We derive static rules for achieving the maximum Sharpe ratio with...

It is now well known that the Sharpe ratio and other related reward-to-risk measures may be manipulated with option-like strategies. In this paper we derive the general conditions for achieving the maximum expected Sharpe ratio. We derive static rules for achieving the maximum Sharpe ratio with...

Market liquidity is complex to measure empirically. This explains why there is no consensus about performance ratios adjusted to its risk. We summarize market liquidity by two major characteristics: a costly one because of the loss of the illiquidity premium; and a profitable one when investors...

We study two principal mechanisms suggested in the literature to correct the serial correlation in hedge fund returns and the impact of this correction on financial characteristics of their returns as well as on their risk level and on their performances. The methods of Geltner (1993), its...

The foundation of popular approaches to portfolio construction and performance measurement lies in the mean-variance framework of Markowitz (1952, 1959). However, the suitability of such approaches in practice is questionable in light of considerable evidence of non-normalities in returns. This...

We propose a performance measure that generalizes the Sharpe ratio. The new performance measure is monotone with respect to stochastic dominance and consistently accounts for mean, variance and higher moments of the return distribution. It is equivalent to the Sharpe ratio if returns are...