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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.

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