A note on empirical Sharpe ratio dynamics
Generating a high positive excess return in a prospective period does not necessarily increase the empirical Sharpe ratio of an investment fund. Therefore, we derive a critical range in which prospective excess returns must lie in order to increase its empirical Sharpe ratio. We also give a formal statement of an excess return value within this critical range that leads to the maximum possible empirical Sharpe ratio in the prospective period.
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- Yong Bao, 2009. "Estimation Risk-Adjusted Sharpe Ratio and Fund Performance Ranking under a General Return Distribution," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 7(2), pages 152-173, Spring.
- Miller, Robert E. & Gehr, Adam K., 1978. "Sample Size Bias and Sharpe's Performance Measure: A Note," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 13(05), pages 943-946, December.
- Bao, Yong & Ullah, Aman, 2006. "Moments of the estimated Sharpe ratio when the observations are not IID," Finance Research Letters, Elsevier, vol. 3(1), pages 49-56, March.
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