2007)tested 46 Islamic mutual funds and calculated their Sharpe Ratio, Treynor ratio
, Jensen Alpha and ANOVA.
An investor-specific performance measurement: A Justification of Sharpe ratio and Treynor ratio
Similar to the Sharpe Ratio, the Treynor Ratio
is a measurement of efficiency utilizing the relationship between annualized risk-adjusted return and risk.
To obtain the third group of performance measures, we use the average weekly portfolio return adjusted for the risk free rate divided by the standard deviation of returns and the estimated market beta to get the Sharpe Ratio and Treynor Ratio
The second performance measure is the Treynor ratio
(9) which also measures the excess return per unit of risk.
Islamic Funds is better performance than Conventional funds because the Treynor Ratio
of Islamic Fund is higher than Conventional Treynor Ratio
These composite portfolio performance measures are the Sharpe ratio, the Treynor ratio
, the Jensen's alpha measure, and the information ratio.
In order to evaluate both the performance and risk character of microfinance investment funds we shall use three risk measures, the standard deviation of returns of a portfolio, the historical portfolio beta coefficient and the R-squared of a portfolio as well as three performance measures largely adopted in the financial literature--so called Jensen's alpha, the Sharpe ratio and the Treynor ratio
The analysis has been made on the basis of mean return, beta risk, co-efficient of determination, Sharpe ratio, Treynor ratio
and Jensen Alpha.
Using market portfolio as a benchmark, some commonly used measures for evaluating the performance of the portfolios of stocks are Ex Post Alpha or Jensen's Coefficient (Jensen 1968), Reward-to-Volatility Ratio (RVOL) or Treynor Ratio
(Treynor 1965), and Reward-to-Variability Ratio (RVAR) or Sharpe Ratio (Sharpe 1966).
Finally, the Treynor ratio
(18) for both the test portfolio and benchmark was calculated and used as a means of comparison where the market return was taken as the return on the MSCI Global Index.
While the Sharpe ratio uses standard deviation measure of total risk (comprising systematic and non-systematic components), the Treynor ratio
uses CAPM's beta as relative measure of systematic risk to divide fund risk premium.