Maguire, Phil and Moser, Philippe and McDonnell, Jack and Kelly, Robert and Fuller, Simon and Maguire, Rebecca
(2013)
A Probabilistic Risk-to-Reward Measure for Evaluating the
Performance of Financial Securities.
In:
IEEE Conference on Computational Intelligence for Financial Engineering & Economics (CIFEr), 2013.
IEEE, pp. 102-109.
ISBN 9781467359214
Abstract
Existing risk-to-reward measures, such as the
Sharpe ratio [1] or M2 [2], are based on the idea of quantifying
the excess return per unit of deviation in an investment. In this
preliminary article we introduce a new probabilistic measure
for evaluating investment performance. Randomness Deficiency
Coefficient (RDC) expresses the likelihood that the observed
excess return of an investment has been generated by chance.
Some of the advantages of RDC over existing measures are
that it can be used with small historical datasets, is time-frame
independent, and can be easily adjusted to take into account
the familywise error rate which results from selection bias. We
argue that RDC captures the fundamental relationship between
risk and reward and prove that it converges with Sharpe’s ratio.
| Item Type: |
Book Section
|
| Keywords: |
convergence; financial management; investment; probability; risk analysis; securities trading; |
| Academic Unit: |
Faculty of Science and Engineering > Computer Science |
| Item ID: |
6486 |
| Identification Number: |
https://doi.org/10.1109/CIFEr.2013.6611704 |
| Depositing User: |
Phil Maguire
|
| Date Deposited: |
20 Oct 2015 15:22 |
| Publisher: |
IEEE |
| Refereed: |
Yes |
| URI: |
|
| Use Licence: |
This item is available under a Creative Commons Attribution Non Commercial Share Alike Licence (CC BY-NC-SA). Details of this licence are available
here |
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