AppraisalRatio: Appraisal ratio of the return distribution

In JFE: Tools and GUI for Analyzing Time Series Data of Just Finance and Econometrics

Appraisal ratio of the return distribution

Description

Appraisal ratio is the Jensen's alpha adjusted for specific risk. The numerator is divided by specific risk instead of total risk.

Usage

AppraisalRatio(Ra, Rb, Rf = 0, method = c("appraisal", "modified",
  "alternative"))

Arguments

Ra	an xts, vector, matrix, data frame, timeSeries or zoo object of asset returns
Rb	return vector of the benchmark asset
Rf	risk free rate, in same period as your returns
method	is one of "appraisal" to calculate appraisal ratio, "modified" to calculate modified Jensen's alpha or "alternative" to calculate alternative Jensen's alpha.

Details

Modified Jensen's alpha is Jensen's alpha divided by beta.

Alternative Jensen's alpha is Jensen's alpha divided by systematic risk.

Appraisal ratio = \frac{\alpha}{\sigma_{\epsilon}}

Modified Jensen's alpha = \frac{\alpha}{\beta}

Alternative Jensen's alpha = \frac{\alpha}{\sigma_S}

where alpha is the Jensen's alpha, \sigma_{epsilon} is the specific risk, \sigma_S is the systematic risk.

Author(s)

Ho Tsung-wu <[e-mail]>, College of Management, National Taiwan Normal University.

References

Carl Bacon, Practical portfolio performance measurement and attribution, second edition 2008 p.77.
See also package PerformanceAnalytics.

Examples

    data(assetReturns)
	Ra=assetReturns[, -29]
	Rb=assetReturns[,29] #DJI
AppraisalRatio(Ra, Rb, method="appraisal")

JFE documentation built on Aug. 28, 2023, 9:06 a.m.