The generalization of the Sharpe ratio to Nerlovian profit efficiency and an application to mutual funds.

摘要

The work generalizes the Sharpe financial ratio in the manner of Murthi, Choi, and Desai. First it utilizes the directional distance function derived by Chung to estimate technical efficiency, then using some broad pricing assumptions estimates Nerlovian Profit Efficiency in the manner of Chambers, Chung, and Fare. These measures are compared to the original Morningstar dataset and the unidirectional input and output distance functions. The NPE measure is then used to test for a statistically significant difference in efficiency between index funds and managed funds. The NPE measure is then compared to the Sharpe, Morningstar and distance function measures.