Classic performance indexes revisited: axiomatic and applications

In this short article we revisit three classic performance indexes: Sharpe, Treynor and Jensen, adding a fourth index, the Penalized Internal Rate of Return (PIRR), which is perfectly coherent with those three. We propose some axioms that support the logic of these indexes, identifying one exception...

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Bibliographic Details
Published in:Applied economics letters 2012-03, Vol.19 (5), p.467-470
Main Authors: Gómez-Bezares, Fernando, Gómez-Bezares, Fernando R.
Format: Article
Language:English
Subjects:
axioms
Economic analysis
Economic indicators
Economic performance
Indexes
Linear models
linear penalization
quotient-based penalization
Rates of return
Studies
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Summary:In this short article we revisit three classic performance indexes: Sharpe, Treynor and Jensen, adding a fourth index, the Penalized Internal Rate of Return (PIRR), which is perfectly coherent with those three. We propose some axioms that support the logic of these indexes, identifying one exception for the Treynor index and warning about the problems of quotients use. All these are empirically supported.
ISSN:1350-4851
1466-4291
DOI:10.1080/13504851.2011.583211