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Definition: Stutzer Index
Stutzer Index is a performance measure that rewards the portfolio which outperforms against the benchmark. Stutzer Index is useful on the basis of the assumption that fund managers favour the portfolio that have low probability of negative returns against the benchmark. This is index is suitable to benchmark hedge funds and pension funds. Unlike sharpe index, calculation of stutzer index doesn’t requires the returns distributed normally.
Formula for calculating Stutzer Index is as under.
Main advantages of this index is that it penalizes negative skewness and high kurtosis and when returns are normally distributed sharpe index and stutzer index are identical. But the disadvantage is that Stutzer index is more difficult to compute than Sharpe index and long time periods are required to get rigorous results.