AppraisalRatio: Appraisal ratio of the return distribution

In PerformanceAnalytics: Econometric Tools for Performance and Risk Analysis

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.
...	any other passthru parameters

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 = Jensen's alpha / specific risk

Modified Jensen's alpha = Jensen's alpha / beta

Alternative Jensen's alpha = Jensen's alpha / systematic risk

where alpha is the Jensen's alpha, σ_{epsilon} is the specific risk, σ_S is the systematic risk.

Author(s)

Matthieu Lestel

References

Carl Bacon, Practical portfolio performance measurement and attribution, second edition 2008 p.77

Examples

data(portfolio_bacon)
print(AppraisalRatio(portfolio_bacon[,1], portfolio_bacon[,2], method="appraisal")) #expected -0.430
print(AppraisalRatio(portfolio_bacon[,1], portfolio_bacon[,2], method="modified")) 
print(AppraisalRatio(portfolio_bacon[,1], portfolio_bacon[,2], method="alternative"))

data(managers)
print(AppraisalRatio(managers['1996',1], managers['1996',8]))
print(AppraisalRatio(managers['1996',1:5], managers['1996',8]))

PerformanceAnalytics documentation built on Feb. 6, 2020, 5:11 p.m.