Don’t use quotients to calculate performance
Quotients, ratios, are among the most applied tools for measuring performance of mutual funds and investment portfolios, the Jensen index being an exception to the general rule. In this paper, we show some problems that arise when quotients are applied, closely related to their statistical meaning,...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
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Taylor & Francis Group
2015-12-01
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| Series: | Cogent Economics & Finance |
| Subjects: | |
| Online Access: | http://dx.doi.org/10.1080/23322039.2015.1065584 |
| _version_ | 1819266698514006016 |
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| author | Fernando Gómez-Bezares Fernando R. Gómez-Bezares |
| author_facet | Fernando Gómez-Bezares Fernando R. Gómez-Bezares |
| author_sort | Fernando Gómez-Bezares |
| collection | DOAJ |
| description | Quotients, ratios, are among the most applied tools for measuring performance of mutual funds and investment portfolios, the Jensen index being an exception to the general rule. In this paper, we show some problems that arise when quotients are applied, closely related to their statistical meaning, which is too often forgotten. We also raise some advantages of the use of linear penalization, introducing a little known methodology for performance measurement. With this purpose, this paper’s approach is comprehensive: we conceptually analyze performance indexes’ geometric and statistical meaning, complementing this with a numerical example and empirical testing that confirm our view. This paper’s main contribution is to demonstrate and empirically test how the use of quotients to measure performance may create problems due to their denominators, which may be solved by applying linear penalization. |
| first_indexed | 2024-12-23T21:05:25Z |
| format | Article |
| id | doaj.art-eb30f2a905e345c9bd421b2147eb2557 |
| institution | Directory Open Access Journal |
| issn | 2332-2039 |
| language | English |
| last_indexed | 2024-12-23T21:05:25Z |
| publishDate | 2015-12-01 |
| publisher | Taylor & Francis Group |
| record_format | Article |
| series | Cogent Economics & Finance |
| spelling | doaj.art-eb30f2a905e345c9bd421b2147eb25572022-12-21T17:31:15ZengTaylor & Francis GroupCogent Economics & Finance2332-20392015-12-013110.1080/23322039.2015.10655841065584Don’t use quotients to calculate performanceFernando Gómez-Bezares0Fernando R. Gómez-Bezares1Deusto Business SchoolThe Boston Consulting GroupQuotients, ratios, are among the most applied tools for measuring performance of mutual funds and investment portfolios, the Jensen index being an exception to the general rule. In this paper, we show some problems that arise when quotients are applied, closely related to their statistical meaning, which is too often forgotten. We also raise some advantages of the use of linear penalization, introducing a little known methodology for performance measurement. With this purpose, this paper’s approach is comprehensive: we conceptually analyze performance indexes’ geometric and statistical meaning, complementing this with a numerical example and empirical testing that confirm our view. This paper’s main contribution is to demonstrate and empirically test how the use of quotients to measure performance may create problems due to their denominators, which may be solved by applying linear penalization.http://dx.doi.org/10.1080/23322039.2015.1065584performanceratiorisklinear penalization |
| spellingShingle | Fernando Gómez-Bezares Fernando R. Gómez-Bezares Don’t use quotients to calculate performance Cogent Economics & Finance performance ratio risk linear penalization |
| title | Don’t use quotients to calculate performance |
| title_full | Don’t use quotients to calculate performance |
| title_fullStr | Don’t use quotients to calculate performance |
| title_full_unstemmed | Don’t use quotients to calculate performance |
| title_short | Don’t use quotients to calculate performance |
| title_sort | don t use quotients to calculate performance |
| topic | performance ratio risk linear penalization |
| url | http://dx.doi.org/10.1080/23322039.2015.1065584 |
| work_keys_str_mv | AT fernandogomezbezares dontusequotientstocalculateperformance AT fernandorgomezbezares dontusequotientstocalculateperformance |