Mutual Fund Selection When Borrowing Is Restricted: On the Virtues of the Generalized Geometric Mean
研究发现，当借贷受限时，夏普比率不再能准确反映投资者福利，而广义几何均值（GGM）能更有效地对基金进行排序，帮助投资者做出更好的选择。
The Sharpe ratio is almost perfectly aligned with investors’ welfare when borrowing is unrestricted. However, when borrowing is realistically restricted, this alignment breaks down dramatically. We show that the geometric mean (GM) provides a much better alternative for fund ranking in this case. Estimates of the ex-ante GM can be improved by first shrinking the sample gross GM and then subtracting fees. The generalized GM (GGM) captures this idea and provides a good estimate of the future net GM. We argue that mutual fund selection can be substantially improved by employing the GGM rather than the more popular Sharpe ratio or alpha.