Inference for the Sharpe ratio using a likelihood-based approach

DOI10.1155/2012/878561MaRDI QIDQ454815zbMATH OpenOpenAlexWikidataFDO

Authors Marie Rekkas, Augustine Wong, Ying Liu

Publication date 10 October 2012

Published in Journal of Probability and Statistics (Search for Journal in Brave)

Copyright license Creative Commons Attribution 4.0 International

Full work available at URL https://doi.org/10.1155/2012/878561

Mathematics Subject Classification ID

Hypothesis testing in multivariate analysis (62H15)

Review text

Summary: The Sharpe ratio is the prominent risk-adjusted performance measure used by practitioners. Statistical testing of this ratio using its asymptotic distribution has lagged behind its use. In this paper, highly accurate likelihood analysis is applied for inference on the Sharpe ratio. Both the one- and two-sample problems are considered. The methodology has distributional accuracy and can be implemented using any parametric return distribution structure. Simulations are provided to demonstrate the method's superior accuracy over existing methods used for testing in the literature.

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• Interval estimation for the Sharpe ratio when returns are not i.i.d. with special emphasis on the GARCH(1,1) process with symmetric innovations
• Noise fit, estimation error and a Sharpe information criterion

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Cited in

(10)

• Comparing large-sample maximum Sharpe ratios and incremental variable testing
• Inference for performance measures for financial assets
• Interval estimation for the Sharpe ratio when returns are not i.i.d. with special emphasis on the GARCH(1,1) process with symmetric innovations
• The large-sample distribution of the maximum Sharpe ratio with and without short sales
• THE SHARPE RATIO AND PREFERENCES: A PARAMETRIC APPROACH
• Direct local linear estimation for Sharpe ratio function
• Noise fit, estimation error and a Sharpe information criterion
• A Re‐Examination of Sharpe's Ratio for Log‐Normal Prices
• Higher-order inference for nonlinear Birnbaum-Saunders regressions
• Inference for the difference of two independent KS Sharpe ratios under lognormal returns

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