WU Gutmann Center Public Lecture

Sonstige Bank Gutmann AG, Schwarzenbergplatz 16, 1010 Wien16:00 - 17:00

Art Vortrag/Diskussion
Vortragende/rProf. Kent Smetters
Veranstalter Department Finance, Accounting and Statistics
Kontakt sabina.krickl@wu.ac.at

"A Sharper Ratio" with Prof. Kent Smet­ters (Univer­sity of Penn­syl­vania)

“A Sharper Ratio”

Prof. Kent Smet­ters

The Wharton School

January 17, 2017 - 4.00 pm

Bank Gutmann AG, Schwar­zen­berg­platz 16, 1010 Wien


Deri­ving a suffi­cient statistic for the stan­dard Expected Utility (EU) problem with a risk-free asset and a risky asset follo­wing a non-­Normal risk distri­bu­tion has been a problem that has dogged econo­mists since at least Samu­elson (1970). This problem is only heigh­tened by modern trading stra­te­gies that produce non-­Normal returns and where the classic Sharpe Ratio is no longer suffi­cient. We prove a new lemma about root selec­tion in a complex plane, allo­wing us to derive a minimal, suffi­cient statistic that requires less infor­ma­tion than the original EU problem. More­over, we prove that the suffi­cient statistic trans­forms non-­Normal, non-i­den­tical risks into a Normal­ly-­dis­tri­buted func­tion space, while preser­ving the original EU orde­ring. As a result, the suffi­cient statistic supports para­metric-­based hypo­thesis testing, which we show is substan­ti­ally more powerful than non-­pa­ra­metric hypo­thesis testing required for the EU problem.

About Kent Smet­ters

Kent Smet­ters is the Boettner Chair Professor at the Univer­sity of Penn­syl­vania’s Wharton School and a Faculty Rese­arch Fellow at the National Bureau of Economic Rese­arch. His rese­arch focuses on applied theory, optimal fiscal policy, personal finance and asset pricing. Previous policy posi­tions include the Congres­sional Budget Office (1995 to 1998) as well as Deputy Assis­tant Secretary (Economic Policy) for the United States Trea­sury (2001-2002). He has published academic arti­cles in leading jour­nals, inclu­ding American Economic Review, Journal of Poli­tical Economy, and The Quar­terly Journal of Econo­mics. Kent Smet­ters received his PhD in Econo­mics from Harvard Univer­sity.

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