Unequal Returns: Using the Atkinson Index to Measure Financial Risk
(2018) In Working Papers- Abstract
- We apply the Atkinson (1970) inequality index to time series of asset returns to offer a novel measure of financial risk consistent with expected-utility theory. This measure is converted to a certainty-equivalent return serving as a performance measure. We extend the Atkinson index to HARA utility and derive closed-form solutions to our measures for a number of preference-return combinations. Further, we establish relationships between risk aversion and the weights assigned to the cumulants of the return distribution for our performance measure. Using data from hedge funds and asset-pricing anomalies, we find that our performance measure contains additional, economically meaningful information.
Please use this url to cite or link to this publication:
https://lup.lub.lu.se/record/cf40562c-6fcf-46c8-8ea5-449af9f78277
- author
- Fischer, Thomas LU and Lundtofte, Frederik LU
- organization
- publishing date
- 2018
- type
- Working paper/Preprint
- publication status
- published
- subject
- keywords
- risk, performance, non-Gaussian distributions, cumulants, hedge funds, G11
- in
- Working Papers
- issue
- 2018:25
- language
- English
- LU publication?
- yes
- id
- cf40562c-6fcf-46c8-8ea5-449af9f78277
- date added to LUP
- 2018-10-17 15:11:53
- date last changed
- 2024-09-10 00:48:44
@misc{cf40562c-6fcf-46c8-8ea5-449af9f78277, abstract = {{We apply the Atkinson (1970) inequality index to time series of asset returns to offer a novel measure of financial risk consistent with expected-utility theory. This measure is converted to a certainty-equivalent return serving as a performance measure. We extend the Atkinson index to HARA utility and derive closed-form solutions to our measures for a number of preference-return combinations. Further, we establish relationships between risk aversion and the weights assigned to the cumulants of the return distribution for our performance measure. Using data from hedge funds and asset-pricing anomalies, we find that our performance measure contains additional, economically meaningful information.}}, author = {{Fischer, Thomas and Lundtofte, Frederik}}, keywords = {{risk; performance; non-Gaussian distributions; cumulants; hedge funds; G11}}, language = {{eng}}, note = {{Working Paper}}, number = {{2018:25}}, series = {{Working Papers}}, title = {{Unequal Returns: Using the Atkinson Index to Measure Financial Risk}}, url = {{https://lup.lub.lu.se/search/files/194855685/WP18_25.pdf}}, year = {{2018}}, }