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.
References listed on IDEAS
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- Jonathan Ingersoll & Ivo Welch, 2007.
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