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Sharpe Ratio for Skew-normal Distributions: A Skewness-dependent Performance Trade-off
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Sharpe Ratio for Skew-normal Distributions: A Skewness-dependent Performance Trade-off
ASU2010146
Authors: Martin Eling, Ph.D., University of Ulm & Luisa Tibiletti, Ph.D., University of Torino
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Main academic criticism of the Sharpe ratio concerns its lack of incorporating skewness in performance evaluation. In this paper we rewrite the classical Sharpe ratio for skew-normal distributions. This new skew-normal Sharpe ratio c onsistenly moves with skewness, and no distorted information on performance is provided. An empirical investigation illustrates skew-normality of mutual and hedge fund returns.
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