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Thomas Fischer . Photo

Thomas Fischer

Associate professor

Thomas Fischer . Photo

Unequal returns : Using the Atkinson index to measure financial risk

Author

  • Thomas Fischer
  • Frederik Lundtofte

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