Related papers: Connecting Sharpe ratio and Student t-statistic, a…
The Sharpe ratio, which is defined as the ratio of the excess expected return of an investment to its standard deviation, has been widely cited in the financial literature by researchers and practitioners. However, very little attention has…
Sharpe ratio (sometimes also referred to as information ratio) is widely used in asset management to compare and benchmark funds and asset managers. It computes the ratio of the (excess) net return over the strategy standard deviation.…
Returns distributions are heavy-tailed across asset classes. In this note, I examine the implications of this well-known stylized fact for the joint statistics of performance (absolute return) and Sharpe ratio (risk-adjusted return). Using…
In the present paper, using a replica analysis, we examine the portfolio optimization problem handled in previous work and discuss the minimization of investment risk under constraints of budget and expected return for the case that the…
The Sharpe ratio is a way to compare the excess returns (over the risk free asset) of portfolios for each unit of volatility that is generated by a portfolio. In this paper we introduce a robust Sharpe ratio portfolio under the assumption…
We present a detailed study of the performance of a trading rule that uses moving average of past returns to predict future returns on stock indexes. Our main goal is to link performance and the stochastic process of the traded asset. Our…
In this paper, we discuss the distribution of the t-statistic under the assumption of normal autoregressive distribution for the underlying discrete time process. This result generalizes the classical result of the traditional…
We discuss - in what is intended to be a pedagogical fashion - generalized "mean-to-risk" ratios for portfolio optimization. The Sharpe ratio is only one example of such generalized "mean-to-risk" ratios. Another example is what we term the…
The recent empirical work of Amaya et al. (2015) has pointed out that the realized skewness, which is the sample skewness of intraday high-frequency returns of a financial asset, serves as forecasting future returns in the cross-section.…
The Sharpe ratio is the most widely used risk metric in the quantitative finance community - amazingly, essentially everyone gets it wrong. In this note, we will make a quixotic effort to rectify the situation.
We provide a new theory for nodewise regression when the residuals from a fitted factor model are used. We apply our results to the analysis of the consistency of Sharpe ratio estimators when there are many assets in a portfolio. We allow…
The upsilon distribution, the sum of independent chi random variates and a normal, is introduced. As a special case, the upsilon distribution includes Lecoutre's lambda-prime distribution. The upsilon distribution finds application in…
In an incomplete market, including liquidly-traded European options in an investment portfolio could potentially improve the expected terminal utility for a risk-averse investor. However, unlike the Sharpe ratio, which provides a concise…
Sharpe ratio (also known as reward-to-variability ratio) is a widely-used metric in finance, which measures the additional return at the cost of per unit of increased risk (standard deviation of return). However, the optimization of Sharpe…
We study the consistency of sample mean-variance portfolios of arbitrarily high dimension that are based on Bayesian or shrinkage estimation of the input parameters as well as weighted sampling. In an asymptotic setting where the number of…
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…
Omega ratio, defined as the probability-weighted ratio of gains over losses at a given level of expected return, has been advocated as a better performance indicator compared to Sharpe and Sortino ratio as it depends on the full return…
Statistical arbitrage exploits temporal price differences between similar assets. We develop a framework to jointly identify similar assets through factors, identify mispricing and form a trading policy that maximizes risk-adjusted…
We use a continuous version of the standard deviation premium principle for pricing in incomplete equity markets by assuming that the investor issuing an unhedgeable derivative security requires compensation for this risk in the form of a…
We study the relationship between model complexity and out-of-sample performance in the context of mean-variance portfolio optimization. Representing model complexity by the number of assets, we find that the performance of low-dimensional…