The paper analyzes the asset pricing implications of performance fees linking the compensation of fund managers to the return of the managed portfolio relative to that of a benchmark portfolio. Symmetric (“fulcrum”) performance fees distort the allocation of managed portfolios in a way that induces a significant positive effect on the equilibrium prices of stocks included in the benchmark portf...

We study model-driven statistical arbitrage in U.S. equities. The trading signals are generated in two ways: using Principal Component Analysis and using sector ETFs. In both cases, we consider the residuals, or idiosyncratic components of stock returns, and model them as mean-reverting processes. This leads naturally to “contrarian” trading signals. The main contribution of the paper is the co...

We describe a general method to transform a non-Markovian sequential decision problem into a supervised learning problem using a K-bestpaths algorithm. We consider an application in financial portfolio management where we can train a controller to directly optimize a Sharpe Ratio (or other risk-averse non-additive) utility function. We illustrate the approach by demonstrating experimental resul...

This paper examines the impact of hedge fund redemption restrictions such as lockup period, notice period, and redemption period on fund flow, risk, and performance. We first examine the effects of redemption restrictions conditional on past poor performance. We then examine the differential impact of redemption restrictions under different market conditions. We find that during normal periods,...

Recently it has been claimed that the difficulty young children have with tests of strategic deception may be due to limitations in executive control rather than lack of insight into mental concepts. In the studies reported here we asked how reducing the executive demands of one measure of strategic deception, the windows task (J. Russell, N. Mauthner, S. Sharpe, & T. Tidswell, 1991), would aff...

The SharpeR package provides basic functionality for testing significance of the Sharpe ratio of a series of returns, and of the Markowitz portfolio on a number of possibly correlated assets.[15] The goal of the package is to make it simple to estimate profitability (in terms of riskadjusted returns) of strategies or asset streams. 1 The Sharpe ratio and Optimal Sharpe ratio Sharpe defined the ...

Traditional risk-adjusted performance measures, such as the Sharpe ratio, the Treynor index or Jensen’s alpha, based on the mean-variance framework, are widely used to rank mutual funds. However, performance measures that consider risk by taking into account only losses, such as Value-at-Risk (VaR), would be more appropriate. Standard VaR assumes that returns are normally distributed, though th...

The most commonly used measures for evaluating the competing mutual funds are “Treynor Ratio”, “Sharpe Ratio” and “Jensen’s Alpha”. One also uses another measure called the “Information Ratio”. However, it is not clear which measure is the most robust. The purpose of our study is to evaluate the performance of mutual funds under the broad framework of Multi-Attribute Decision Analysis approach ...

This paper investigates performance attribution measures as a basis for constraining portfolio optimization. We employ optimizations that minimize conditional value-at-risk and investigate two attributes, asset allocation (AA) the selection effect (SE), constraints on weights. The test consists of stocks from Dow Jones Industrial Average index. Values attributes are established relative to benc...