Portfolio performance evaluation using value at risk

Gordon J. Alexander, Alexandre M. Baptista

Research output: Contribution to journalArticlepeer-review

32 Scopus citations

Abstract

Developed here is a value at risk-based measure of portfolio performance called the reward-to-VaR ratio. it is demonstrated that, under normality, the reward-to-VaR ratio gives the same ranking for portfolio performance as the frequently used Sharpe ratio. Under non-normality, the reward-to-VaR ratio at one confidence level may give a ranking for portfolio performance different from the ranking obtained at a different confidence level. This indicates that the risk-taking incentives of a portfolio manager in a VaR-based risk management system can be substantially different from the incentives in a Sharpe ratio-based system.

Original languageEnglish (US)
Pages (from-to)93-102+7+9
JournalJournal of Portfolio Management
Volume29
Issue number4
StatePublished - Jun 1 2003

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