Yes, the Choice of Performance Measure Does Matter for Ranking of US Mutual Funds

Can cooperative game theory solve the low‐risk puzzle?

“…Because variance has also been criticized as being impacted by events with positive effects for investors (see Yan et al, 2007), our second simulation study focuses on classic downside risk measures (lower partial moments, value at risk, and drawdowns) that have become very popular in investment practice (see Lagoarde-Segot and Lucey, 2007;Ornelas et al, 2012;Stoyanov et al, 2017). Compared with variance, analytically deriving an expression for portfolio risk based on such measures can be difficult if not impossible (without highly specific return process assumptions).…”

Pitfalls of Downside Performance Measures with Arbitrary Targets

“…Both theoretical and empirical papers in this field adopt a target at the level of the risk-free rate. Ornelas et al (2012) observe a decreasing rank correlation of performance measures when a different target is used.…”

False discoveries in volatility timing of mutual funds

“…However, we also calculate the other 12 performance measures: Jensen's alpha, the Treynor index, omega, Sortino's ratio, kappa, Calmar, Sterling, Burke, the conditional Sharpe ratio, the modified Sharpe ratio, the manipulation-proof performance measure (MPPM), and the Rachev ratio. The MPPM and Rachev ratio are considered because Ornelas et al (2012) and Zakamouline (2010) show that these show different performance rankings for mutual and hedge funds, compared to the other performance measures. For more details on calculating these measures, see Eling and Schuhmacher (2007) and Eling (2008) for the 14 performance measures besides the MPPM and Rachev ratio, Ornelas et al (2012) for the MPPM, and Zakamouline (2010) for the Rachev ratio.…”

“…The MPPM and Rachev ratio are considered because Ornelas et al (2012) and Zakamouline (2010) show that these show different performance rankings for mutual and hedge funds, compared to the other performance measures. For more details on calculating these measures, see Eling and Schuhmacher (2007) and Eling (2008) for the 14 performance measures besides the MPPM and Rachev ratio, Ornelas et al (2012) for the MPPM, and Zakamouline (2010) for the Rachev ratio. However, the results are quantitatively similar to those of Table 6, except for the Rachev ratio.…”