Losing money with a high Sharpe ratio
A simple example shows that losing all money is compatible with a very high Sharpe ratio (as computed after losing all money). However, the only way that the Sharpe ratio can be high while losing money is that there is a period in which all or almost all money is lost. This note explores the best achievable Sharpe and Sortino ratios for investors who lose money but whose one-period returns are bounded below (or both below and above) by a known constant.
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- William F. Sharpe, 1965. "Mutual Fund Performance," The Journal of Business, University of Chicago Press, vol. 39, pages 1-119.
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