On the other hand, when relatively poorly diversified portfolios are considered, the Treynor Index
, due to its diversification weakness and failure to address some of the variables, may lead the results to vary considerably.
: The Treynor index
measures portfolio risk with beta and calculates portfolio's market risk premium relative to its beta:
In fact, while outperforming companies do not record significant abnormal returns, the targets which have a lower possibility of increasing shareholder wealth in the future (companies with a negative Treynor Index
) have an ACAR that is extremely negative and significant at 1% over the twenty and thirty days which follow the alert.
* All the seven schemes covered under the study showed negative risk premium, Sharpe index and Treynor index
in all the years covered under
Two performance measures are often used to determine the risk-adjusted performance of a portfolio: the Sharpe Ratio and the Treynor Index
Similar conclusions are revealed by the analysis of the Treynor index
values in Table 4.
The paper applies three popular measures of performance such as Jensen index, Treynor index
and Sharpe index.
The Treynor Index
uses systematic risk, measured by beta, instead of total risk in calculating risk-adjusted measures.
The Treynor index
is the spread between the fund's unadjusted total return and the risk-free rate, divided by the beta of the fund.
The strongest association is observed with the Treynor index
. However, in the case of developed markets there is weak evidence to suggest that DEA models specified under the conventional framework may have a decisive effect on the ranking compared to the rankings obtained under the standard measures.
Rank the following funds based on the Treynor Index
(highest to lowest):