An Upper Bound for Ex-Post Sharpe Ratio with Application in Performance Measurement

Raymond H. CHAN, Kelvin K. KAN, Alfred K. MA

Research output: Journal PublicationsJournal Article (refereed)peer-review

Abstract

The Sharpe ratio and the maximum drawdown (MDD) are two of the most important tools for risk measurement. Existing literatures have presented analytical results relating them under geometric Brownian motion. In this paper, we take a data-driven approach to derive a relationship between ex-post Sharpe ratio and MDD. We do not assume any specific distribution of the returns except that they be stationary and ergodic. The relationship we derive can serve as a quick sanity check for black-box performance reports if the Sharpe ratios are estimated by the ex-post Sharpe ratio. Some numerical results are given for illustration.
Original languageEnglish
Pages (from-to)7-19
Number of pages13
JournalJournal of Performance Measurement
Volume22
Issue number1
Publication statusPublished - 2017
Externally publishedYes

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