A uniformly distributed random portfolio

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In this study, we propose a uniformly distributed random portfolio as an alternative benchmark for portfolio performance evaluation. The uniformly distributed random portfolio is analogous to an enumeration of all feasible portfolios without any prior on the market. Therefore, the relative ranking of a portfolio can be evaluated without peer group information. We derive a closed-form expression for the probability distribution of the Sharpe ratio of a uniformly distributed random portfolio, and conduct comparative analysis with US equity mutual funds. We find that the uniformly distributed random portfolio properly captures the historical performance distribution of equity mutual funds. In addition, we evaluate performance of cap-weighted equity portfolios via uniformly distributed random portfolios.
Publisher
ROUTLEDGE JOURNALS
Issue Date
2016
Language
English
Article Type
Article; Proceedings Paper
Keywords

STOCK PORTFOLIOS; RISK; EFFICIENT

Citation

QUANTITATIVE FINANCE, v.16, no.2, pp.297 - 307

ISSN
1469-7688
DOI
10.1080/14697688.2015.1114360
URI
http://hdl.handle.net/10203/212174
Appears in Collection
IE-Journal Papers(저널논문)
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