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Unequal Returns: Using the Atkinson Index to Measure Financial Risk

Fischer, Thomas LU and Lundtofte, Frederik LU (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.
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author
organization
publishing date
type
Working Paper
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
alternative location
https://swopec.hhs.se/lunewp/abs/lunewp2018_025.htm
date added to LUP
2018-10-17 15:11:53
date last changed
2018-11-21 21:42:31
@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},
  keyword      = {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},
  year         = {2018},
}