Thomas Fischer
Associate professor
Unequal returns : Using the Atkinson index to measure financial risk
Author
Summary, in English
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.
Department/s
- Department of Economics
Publishing year
2020
Language
English
Publication/Series
Journal of Banking and Finance
Volume
116
Document type
Journal article
Publisher
Elsevier
Topic
- Economics
Keywords
- Cumulants
- Hedge funds
- Non-Gaussian distributions
- Performance
- Risk
Status
Published
ISBN/ISSN/Other
- ISSN: 0378-4266