Robust evidence on the similarity of Sharpe ratio and drawdown-based hedge fund performance rankings

In this article, we analyse whether the class of adequately defined drawdown-based performance measures produces hedge fund rankings similar to the one that can be obtained using the Sharpe ratio. Supported by a series of robustness checks, we find that the choice of performance measure does not matter if investors are simply interested in identifying the best hedge funds and if a sufficient return history is used to calculate performance measure estimates. In small time series sample sizes typically used to evaluate hedge funds, the rankings cannot be regarded as strictly identical. However, with an increasing time series dimension, the ranking differences fall considerably.