AppraisalRatio {PerformanceAnalytics} | R Documentation |
Appraisal ratio is the Jensen's alpha adjusted for specific risk. The numerator is divided by specific risk instead of total risk.
AppraisalRatio(Ra, Rb, Rf = 0, method = c("appraisal", "modified", "alternative"), ...)
Ra |
an xts, vector, matrix, data frame, timeSeries or zoo object of asset returns |
Rb |
return vector of the benchmark asset |
Rf |
risk free rate, in same period as your returns |
method |
is one of "appraisal" to calculate appraisal ratio, "modified" to calculate modified Jensen's alpha or "alternative" to calculate alternative Jensen's alpha. |
... |
any other passthru parameters |
Modified Jensen's alpha is Jensen's alpha divided by beta.
Alternative Jensen's alpha is Jensen's alpha divided by systematic risk.
Appraisal ratio = Jensen's alpha / specific risk
Modified Jensen's alpha = Jensen's alpha / beta
Alternative Jensen's alpha = Jensen's alpha / systematic risk
where alpha is the Jensen's alpha, σ_{epsilon} is the specific risk, σ_S is the systematic risk.
Matthieu Lestel
Carl Bacon, Practical portfolio performance measurement and attribution, second edition 2008 p.77
data(portfolio_bacon) print(AppraisalRatio(portfolio_bacon[,1], portfolio_bacon[,2], method="appraisal")) #expected -0.430 print(AppraisalRatio(portfolio_bacon[,1], portfolio_bacon[,2], method="modified")) print(AppraisalRatio(portfolio_bacon[,1], portfolio_bacon[,2], method="alternative")) data(managers) print(AppraisalRatio(managers['1996',1], managers['1996',8])) print(AppraisalRatio(managers['1996',1:5], managers['1996',8]))