AppraisalRatio: Appraisal ratio of the return distribution

Description Usage Arguments Details Author(s) References Examples

Description

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

Usage

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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

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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.