Key to any trading strategy is measuring your performance, and not just in total return. With that, here are a few miscellaneous links.
Via Abnormal Returns: All About Alpha looks at rethinking CAPM. William Sharpe came up with the Sharpe Ratio as a measure of performance, but it has come under fire since it assumes that market returns are normally distributed when they really have fat tails. This has lead to the development of tools such as the Omega Ratio. Now Sharpe is rethinking the way to measure performance in a "state-preference approach" that supposedly involves easier mathematics. The Economist's view has more.
Teresa Lo discusses the mathematics of performance, including R-multiples and the Information Ratio.
There are other, more obscure measurements such as the Stirling Ratio and the K-Ratio. Traders often look at drawdown.
This paper looks at performance measures that cannot be "gamed" by portfolio managers.
The Sharpe Ratio is a nice portable, one-number measure for comparing the performance of various strategies. I've never calculated one, however. Give me a graph of the back-tested equity curve (after trading costs, including some assumed income tax rate) vs. the S&P 500 or other index, preferably since before the Great Depression, and I'll know if it's a great performance or not. If it's a system that often holds high amounts of cash, include throw in a calculation of the internal rate of return and ideally a plot of the cash account or it's moving average and I'm good to go. You'll pretty much have everything encompassed in the above measures and more.
Update: The Capital Spectator looks at standard deviation as a measure.
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