A More Informative Measure of Active Fund Performance
This paper presents a new measure of active fund performance that evaluates funds in a manner which is aligned with what investors seek to optimize: utility. Unlike the information ratio, which is currently one of the most popular metrics of performance used by practitioners, my measure assumes a concave utility function and incorporates one’s aversion to risk. I convey the importance of these improvements through comparative static analysis. Finally, using a sample of mutual funds I also find that the information ratio is only weakly robust to my measure.
Nanigian, David, "A More Informative Measure of Active Fund Performance" (2011). Faculty Publications. 110.