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 journalArticlepeer-review

19 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 languageEnglish
Pages (from-to)37-65
Number of pages29
JournalRisk and Decision Analysis
Volume3
Issue number1-2
DOIs
Publication statusPublished - 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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