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
ISSN (print)
15697371
ISSN (electronic)
18759173
Recommended Citation
Wong, W. K., J. A. Wright, S. C P Yam, and S. P. Yung. "A mixed sharpe ratio." Risk and Decision Analysis 3.2-1 (2012): 37-65.