PT  - JOURNAL ARTICLE
AU  - James X. Xiong
AU  - Thomas M. Idzorek
TI  - A Case for Tail-Risk-Based Sharpe Ratios
AID  - 10.3905/jpm.2018.44.3.114
DP  - 2018 Jan 31
TA  - The Journal of Portfolio Management
PG  - 114--125
VI  - 44
IP  - 3
4099  - https://pm-research.com/content/44/3/114.short
4100  - https://pm-research.com/content/44/3/114.full
AB  - Surprisingly to many investors, low volatility tends to be accompanied with an undesirable risk characteristic: lower or negative skewness. A stock or fund can rank well based on the standard Sharpe ratio but low on enhanced tail-risk-based Sharpe ratios that account for non-normal returns, and vice versa. The authors quantify these economically meaningful ranking differences and show that skewness dominates other variables in explaining the ranking variations for the Conditional Value-at-Risk (CVaR)-based Sharpe ratio. Both skewness and serial correlation play important roles in the ranking variations for the maximum drawdown-based Sharpe ratio. TOPICS: Analysis of individual factors/risk premia, VAR and use of alternative risk measures of trading risk