Unequal Returns: Using the Atkinson Index to Measure Financial Risk

Research output: Working paper

Abstract

We apply the Atkinson (1970) inequality index to time series of asset returns to offer a novel measure of financial risk consistent with expected-utility theory. This measure is converted to a certainty-equivalent return serving as a performance measure. We extend the Atkinson index to HARA utility and derive closed-form solutions to our measures for a number of preference-return combinations. Further, we establish relationships between risk aversion and the weights assigned to the cumulants of the return distribution for our performance measure. Using data from hedge funds and asset-pricing anomalies, we find that our performance measure contains additional, economically meaningful information.

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Authors
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Research areas and keywords

Subject classification (UKÄ) – MANDATORY

  • Economics

Keywords

  • risk, performance, non-Gaussian distributions, cumulants, hedge funds, G11
Original languageEnglish
Publication statusPublished - 2018
Publication categoryResearch

Publication series

NameWorking Papers
PublisherLund University, Department of Economics
No.2018:25