Performance measures: advantages of linear risk penalization

This work corrects the risk quotient penalization carried out by the Sharpe and Treynor ratios, which, assuming normality in returns distribution, are equivalent to classifying the funds according to the probability of their returns being below that of the risk-free asset, without considering the entire distribution of the funds' returns. Different performance measures are applied to a sample of Spanish investment funds, and it is shown that all the measures lead to similar fund classifications, enabling us to conclude that the measures proposed, though methodologically improving the Sharpe and Treynor ratios, maintain their economic meaning and their financial nature.