Unequal returns : Using the Atkinson index to measure financial risk
(2020) In Journal of Banking and Finance 116.- 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.
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https://lup.lub.lu.se/record/e14cc6a7-a06d-4b61-a5be-5bcba8763237
- author
- Fischer, Thomas LU and Lundtofte, Frederik LU
- organization
- publishing date
- 2020
- type
- Contribution to journal
- publication status
- published
- subject
- keywords
- Cumulants, Hedge funds, Non-Gaussian distributions, Performance, Risk
- in
- Journal of Banking and Finance
- volume
- 116
- article number
- 105819
- publisher
- Elsevier
- external identifiers
-
- scopus:85084051846
- ISSN
- 0378-4266
- DOI
- 10.1016/j.jbankfin.2020.105819
- language
- English
- LU publication?
- yes
- id
- e14cc6a7-a06d-4b61-a5be-5bcba8763237
- date added to LUP
- 2020-05-08 13:58:05
- date last changed
- 2022-04-18 22:22:36
@article{e14cc6a7-a06d-4b61-a5be-5bcba8763237, abstract = {{<p>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.</p>}}, author = {{Fischer, Thomas and Lundtofte, Frederik}}, issn = {{0378-4266}}, keywords = {{Cumulants; Hedge funds; Non-Gaussian distributions; Performance; Risk}}, language = {{eng}}, publisher = {{Elsevier}}, series = {{Journal of Banking and Finance}}, title = {{Unequal returns : Using the Atkinson index to measure financial risk}}, url = {{http://dx.doi.org/10.1016/j.jbankfin.2020.105819}}, doi = {{10.1016/j.jbankfin.2020.105819}}, volume = {{116}}, year = {{2020}}, }