“Completely different Danger-Adjusted Fund Efficiency Measures: A Comparability”
Abstract This paper compares numerous risk-adjusted efficiency measures for a set of mutual funds. The authors argue that efficiency measures primarily based on Worth-at-Danger (VaR) or Excessive Worth Principle (EVT) are extra applicable than different common efficiency measures such because the Sharpe ratio (SR), the Treynor index (TI) or Jensen´s Alpha (JA) . They suggest a efficiency index much like the SR and the TI primarily based on losses calculated via VaR along with EVT.
They discover that EVT-VaR measures are extra applicable within the presence of non-normal information.
Foremost Feedback The subject of the paper is of relevance for monetary practitioners in addition to teachers and it’s actually relevant to the present monetary stability context. The paper can also be typically wellwritten. Nonetheless, I’ve some feedback for its enchancment. 1. The contribution of the paper isn’t clearly acknowledged. Within the sixth paragraph of the introduction, the authors counsel that their important contribution is the development of a efficiency index primarily based on EVT-VAR.
Nonetheless, it isn’t very clear why the brand new proposed measure must be higher in relation to current measures as it’s now defined. It’s true that VaR or EVT must be extra dependable measures for excessive occasions however when formulation (13) it isn’t obvious why this measure must be extra dependable than the standard measures. The denominator has, the truth is, an “excessive return” versus the SR or TI which have strictly second moments, so it isn’t very straight ahead to narrate these measures.
A greater job must be performed at explaining the implications of such VaR primarily based measure, the way it pertains to different measures and why it must be higher. 2. Why have the measures been in contrast solely in a “static” method? It’s extensively recognized within the finance literature that asset return volatility is time-varying, and to some extent, additionally anticipated returns.
It might be doable to go across the latter by arguing market effectivity (which can also be questionable) however it’s actually rather more troublesome to argue in opposition to time-variability of the usual deviation within the VaR measures (or within the SA and TI ratios). This is essential because the “good” or “unhealthy” applicability of a specific efficiency measure could possibly be pattern dependent and as it’s now with unconditional measures, that is onerous to uncover. As an illustration, whereas the authors account for nonnormality of returns within the modified-VaR measure via a Nook-Fisher quantile,
they assume a continuing commonplace deviation which implies that in intervals of excessive volatility they may nonetheless understate the VaR. So on the minimal, the efficiency comparisons must be performed for the total pattern and totally different sub-samples and it must be examined whether or not the measures obtained are considerably totally different over totally different samples. three. The authors focus on high 10 and backside 10 funds for their Assessment and discarded the opposite funds “for the sake of simplicity”. Nonetheless, by selecting solely the “tail” funds, the authors are giving from the beginning a bonus to EVT or VaR measures. It might be extra applicable to additionally report outcomes on (say) 10 “mid” funds.
four. It isn’t very clear why the highest 10 funds “present extra departures from normality” in relation to backside funds. This discovering must be expanded and the instinct behind it must be higher defined. One may argue that “losers” could possibly be extra unstable than “winners” as the extent of uncertainty with respect to the fund would possibly enhance which may result in extra excessive returns. In reality, within the third paragraph of the empirical end result part it says “the underside 10 funds have, on the whole, greater VaR values than the highest ones, which implies that they’re extra inclined to excessive occasions” which is considerably contradictory with the discovering that the highest 10 funds exhibit extra departures from normality.
Furthermore, one of many important findings of the examine is that the VaR and EVT efficiency measures carry out greatest in relation to different measures when there are extra departures from normality in returns. A greater try to reconcile the findings of nonnormality, the “winner vs. looser” funds and the outcomes on the efficiency measures with some earlier research or passable instinct must be performed.
Different feedback 1. The contributions of the paper must be acknowledged earlier within the paper and never nearly on the finish of the introduction as it’s now. The contributions must be clearer (see additionally level 1 above) and must be higher associated to the present related literature. 2. The conclusion is just too lengthy. The concluding remarks must be a lot shorter and will solely summarize the principle findings and reconcile them with the problems raised within the introduction in addition to spotlight doable extensions for future work.
three. The tables must also be improved. They need to have a brief description of the contents to facilitate studying. As it’s now, the reader has to continuously come again to the principle textual content to search out out what the contents imply. four. The figures are hardly seen, they need to even be improved and a brief clarification must be given.