Document Type

Journal Article

Department/Unit

Department of Economics

Title

A mixed sharpe ratio

Language

English

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. © 2012 - IOS Press and the authors. All rights reserved.

Keywords

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

Publication Date

2012

Source Publication Title

Risk and Decision Analysis

Volume

3

Issue

2-1

Start Page

37

End Page

65

Publisher

IOS Press

DOI

10.3233/RDA-2012-0051

Link to Publisher's Edition

http://dx.doi.org/10.3233/RDA-2012-0051

ISSN (print)

15697371

ISSN (electronic)

18759173

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