Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/29353
Authors: 
Grau-Carles, Pilar
Sainz, Jorge
Otamendi, Javier
Doncel, Luis Miguel
Year of Publication: 
2009
Series/Report no.: 
Economics Discussion Papers 2009-54
Abstract: 
Traditional risk-adjusted performance measures, such as the Sharpe ratio, the Treynor index or Jensen's alpha, based on the mean-variance framework, are widely used to rank mutual funds. However, performance measures that consider risk by taking into account only losses, such as Value-at-Risk (VaR), would be more appropriate. Standard VaR assumes that returns are normally distributed, though they usually present skewness and kurtosis. In this paper we compare these different measures of risk: traditional ones vs. ones that take into account fat tails and asymmetry, such as those based on the Cornish-Fisher expansion and on the extreme value theory. Moreover, we construct a performance index similar to the Sharpe ratio using these VaR-based risk measures. We then use these measures to compare the rating of a set of mutual funds, assessing the different measures' usefulness under the Basel II risk management framework.
Subjects: 
Mutual funds
performance measures
Value-at-Risk
extreme value theory
JEL: 
G10
G11
G20
Creative Commons License: 
http://creativecommons.org/licenses/by-nc/2.0/de/deed.en
Document Type: 
Working Paper

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