A mixed Sharpe ratio

Wing Keung WONG; J. A. Wright; S. C.P. Yam; S. P. Yung

doi:10.3233/RDA-2012-0051

A mixed Sharpe ratio

Wing Keung WONG^*, J. A. Wright, S. C.P. Yam, S. P. Yung

^*Corresponding author for this work

Research output: Contribution to journal › Journal article › peer-review

20 Citations (Scopus)

Abstract

Recent results in optimal stopping theory have shown that a 'bang-bang' (buy or sell immediately) style of trading strategy is in some sense optimal provided the asset's price dynamics follow certain familiar stochastic processes. This paper constructs a reward-to-variability ratio (the mixed Sharpe ratio) that is sufficient for this strategy's implementation. The use of this ratio for optimal portfolio selection is discussed and evidence for it varying over time is found. The performances of the 'bang-bang' and 'buy-and-hold' trading strategies are compared and the former is found to be significantly more profitable.

Original language	English
Pages (from-to)	37-65
Number of pages	29
Journal	Risk and Decision Analysis
Volume	3
Issue number	1-2
DOIs	https://doi.org/10.3233/RDA-2012-0051
Publication status	Published - 2012

Scopus Subject Areas

Statistics and Probability
Finance
Economics and Econometrics
Statistics, Probability and Uncertainty

User-Defined Keywords

Lévy processes
mutual funds
optimal stopping theory
optimal trading strategy
Sharpe ratio

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10.3233/RDA-2012-0051

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title = "A mixed Sharpe ratio",

abstract = "Recent results in optimal stopping theory have shown that a 'bang-bang' (buy or sell immediately) style of trading strategy is in some sense optimal provided the asset's price dynamics follow certain familiar stochastic processes. This paper constructs a reward-to-variability ratio (the mixed Sharpe ratio) that is sufficient for this strategy's implementation. The use of this ratio for optimal portfolio selection is discussed and evidence for it varying over time is found. The performances of the 'bang-bang' and 'buy-and-hold' trading strategies are compared and the former is found to be significantly more profitable.",

keywords = "L{\'e}vy processes, mutual funds, optimal stopping theory, optimal trading strategy, Sharpe ratio",

author = "WONG, {Wing Keung} and Wright, {J. A.} and Yam, {S. C.P.} and Yung, {S. P.}",

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T1 - A mixed Sharpe ratio

AU - WONG, Wing Keung

AU - Wright, J. A.

AU - Yam, S. C.P.

AU - Yung, S. P.

PY - 2012

Y1 - 2012

N2 - Recent results in optimal stopping theory have shown that a 'bang-bang' (buy or sell immediately) style of trading strategy is in some sense optimal provided the asset's price dynamics follow certain familiar stochastic processes. This paper constructs a reward-to-variability ratio (the mixed Sharpe ratio) that is sufficient for this strategy's implementation. The use of this ratio for optimal portfolio selection is discussed and evidence for it varying over time is found. The performances of the 'bang-bang' and 'buy-and-hold' trading strategies are compared and the former is found to be significantly more profitable.

AB - Recent results in optimal stopping theory have shown that a 'bang-bang' (buy or sell immediately) style of trading strategy is in some sense optimal provided the asset's price dynamics follow certain familiar stochastic processes. This paper constructs a reward-to-variability ratio (the mixed Sharpe ratio) that is sufficient for this strategy's implementation. The use of this ratio for optimal portfolio selection is discussed and evidence for it varying over time is found. The performances of the 'bang-bang' and 'buy-and-hold' trading strategies are compared and the former is found to be significantly more profitable.

KW - Lévy processes

KW - mutual funds

KW - optimal stopping theory

KW - optimal trading strategy

KW - Sharpe ratio

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DO - 10.3233/RDA-2012-0051

M3 - Journal article

AN - SCOPUS:84855774710

SN - 1569-7371

VL - 3

SP - 37

EP - 65

JO - Risk and Decision Analysis

JF - Risk and Decision Analysis

IS - 1-2

ER -

A mixed Sharpe ratio

Abstract

Scopus Subject Areas

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