Stochastic dominance and the omega ratio

Stochastic dominance and the omega ratio

The Omega ratio is an intuitive performance measure that encodes investors' desire for higher upside returns and aversion to losses. This paper shows that unlike the popular Sharpe ratio, the Omega ratio is consistent with second-order stochastic dominance which goes beyond the first two moment...

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Veröffentlicht in:Finance research letters 2016-05, Vol.17, p.7-9
1. Verfasser: Fong, Wai Mun
Format: Artikel
Sprache:eng
Schlagworte:
Downside risk
Investments
Omega ratio
Performance measurement
Stochastic dominance
Stochastic models
Studies
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Beschreibung
Zusammenfassung:The Omega ratio is an intuitive performance measure that encodes investors' desire for higher upside returns and aversion to losses. This paper shows that unlike the popular Sharpe ratio, the Omega ratio is consistent with second-order stochastic dominance which goes beyond the first two moments. Practical implications of this result are discussed.
ISSN:1544-6123
1544-6131
DOI:10.1016/j.frl.2015.10.026