Georges Hübner: This paper presents a generalisation of the Treynor ratio in a multi-index setup.
Department of Management, University of LiègeAssociate Professor, EDHEC Business School
The solution proposed in this paper is the simplest measure that keeps Treynor's original interpretation of the ratio of abnormal excess return (Jensen's alpha) to systematic risk exposure (the beta) and preserves the same key geometric and analytical properties as the original single index measure. The Generalised Treynor ratio is defined as the abnormal return of a portfolio per unit of weighted-average systematic risk, the weight of each risk loading being the value of the corresponding risk premium. The empirical illustration uses a sample of funds with different styles. It tends to show that this new portfolio performance measure, although it yields more dispersed values than Jensen's alphas, is more robust to a change in asset pricing specification or a change in benchmark.
|Research Cluster :||Finance|