Double-sided balanced conditional Sharpe ratio

Saeid Tajdini,Reza Tehrani,Mohsen Mehrara

doi:10.1080/23322039.2019.1630931

Abstract

The purpose of this study was to investigate the behavior of various indices of Tehran Stock Exchange firstly in the boom period from 2018-03-21 to 2018-11-02 and secondly in the recession period f...

Highlights

When looking into investment, you need to look at both risk and return
For any risky asset or portfolio, the Sharpe ratio is defined as the ratio of the excess return to the standard deviation of that return
Andreea–Cristina and Stelian (2017) investigated volatility in Euro exchange rate versus the Romanian currency and found that asymmetric exponential generalized autoregressive conditional heteroskedastic (EGARCH) and Power GARCH (PGARCH) models were more powerful than symmetric generalized autoregressive conditional heteroskedasticity (GARCH) models for estimation of risk and return

Summary

Introduction

You need to look at both risk and return. While return can be quantified, risk cannot. Standard deviation is the most commonly referenced risk measure, while the Sharpe ratio is the most commonly used return/risk measure. This paper, by developing the Sharpe ratio, examines the behavior of stock indexes in two periods of boom and recession and introduces the double-sided balanced conditional Sharpe ratio instead of the Sharpe ratio to perform a more accurate evaluation of assets. Deviation in the Sharpe ratio by an alternative risk measure Some researchers such as Sortino and Price (1994) and Ziemba (2005) have replaced standard deviation by downside deviation and some others such as Dowd (2000) and Gregoriou and Gueyie (2003) have used Value-at-Risk measure instead of standard deviation. The research sample includes the daily price information of six different indexes, including insurance, food except sugar, sugar, chemicals, metallic minerals, and price index (TEPIX) of Tehran stock market in two periods, firstly, in the boom period from 2018-03-21 to 2018-11-02 and secondly in the recession period from 2016-03-20 to 2016-12-20

Literature of conditional risk

Methodology

Conditional Sharpe ratio in boom conditions

Findings

Results