The new paper "How to use Sharpe Ratio" is an important reading for any analyst attempting to compare two managers or strategies based on the Sharpe ratio. Many of the implications associated with the Sharpe ratio have been discussed in previous papers; however, this one presents all the limitations and possible solutions in a single reading. The authors present several adjustments to the Sharpe ratio to account for issues such as non-normality, but they also list and comment on all past research that has been associated with the Sharpe ratio. The overall conclusion is that using quick calculations should be done with peril. Oftentimes, minor adjustments will help on the margin. This is important because often Sharpe ratios for many strategies are close to each other, so rankings will flip once you account for some of these adjustments
No comments:
Post a Comment