What is ‘K-Ratio’
A ratio that is used in the performance evaluation of an equity relative to its risk. The ratio examines the consistency of an equity’s return over time. The data for the ratio is derived from a value added monthly index (VAMI), which tracks the progress of a $1,000 initial investment in the security being analyzed.
Calculated as:
Explaining ‘K-Ratio’
The K-ratio was developed by Lars Kestner, a derivatives trader and statistician. The K-ratio calculation involves running a linear regression on the log-VAMI curve. The results of the regression are used subsequently in the K-ratio formula. The slope is the return, while the standard error of the slope represents the risk. The ratio takes the return of the security over time, and it is considered a good tool to measure the performance of an equity.
Further Reading
- Economic and financial analysis of harvesting and utilization of river reed in the Okavango Delta, Botswana – www.sciencedirect.com [PDF]
- Asset price shocks, financial constraints, and investment: Evidence from Japan – www.jstor.org [PDF]
- Indicators of financial development – www.sciencedirect.com [PDF]
- Industry conditions, growth opportunities and market reactions to convertible debt financing decisions – www.sciencedirect.com [PDF]
- Coping with business risk through probabilistic financial statements – journals.sagepub.com [PDF]
- Profit sharing and the financial performance of companies: evidence from UK panel data – academic.oup.com [PDF]
- Testing Q theory with financing frictions – www.sciencedirect.com [PDF]
- Financial liberalization, openness and convergence – www.tandfonline.com [PDF]
