A note on empirical Sharpe ratio dynamics. (English) Zbl 1253.91127

Summary: 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.


91B64 Macroeconomic theory (monetary models, models of taxation)
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