RT Journal Article
SR Electronic
T1 D-Index: <em>A Risk Measure in a New Dimension</em>
JF The Journal of Index Investing
FD Institutional Investor Journals
SP 84
OP 91
DO 10.3905/jii.2018.9.1.084
VO 9
IS 1
A1 Alfred K. Ma
A1 Lanston L. Yeung
YR 2018
UL https://pm-research.com/content/9/1/84.abstract
AB In this article, we construct a risk measure of an investment, called the D-Index, which measures the fraction of time the investment is in a drawdown. The D-Index isolates the time dimension from the returns when measuring risk, and this property uniquely characterizes it from other performance measures. An explicit analytical form of the ex-ante D-Index is provided for the case of a buy-and-hold strategy with price dynamics following a Black-Scholes model. Numerical evidence based on 32,642 funds across three asset classes shows that the D-Index does not exhibit strong rank correlation with the Sharpe ratio across funds, in contrast with most other existing risk-measures. Coupled with evidence from experimental psychology, this new perspective motivates us to consider its importance in investment decision making in the real-world environment.TOPICS: Analysis of individual factors/risk premia, downside-only measures, risk management