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Losing money with a high Sharpe ratio

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  • Vladimir Vovk

Abstract

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 or almost all money is lost. This note explores the best achievable Sharpe and Sortino ratios for investors who lose money but whose one-period returns are bounded below (or both below and above) by a known constant.

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  • Vladimir Vovk, 2011. "Losing money with a high Sharpe ratio," Papers 1109.0706, arXiv.org.
    • Handle: RePEc:arx:papers:1109.0706
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    References listed on IDEAS

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    1. William F. Sharpe, 1965. "Mutual Fund Performance," The Journal of Business, University of Chicago Press, vol. 39, pages 119-119.
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    Cited by:

    1. Petr Kupčík & Pavel Gottwald, 2015. "The Influence of the Sharpe Ratio on Appreciation Savings Intended for the Payment of Lifetime Pensions," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 63(6), pages 1987-1993.
    2. Petr Kupčík & Pavel Gottwald, 2016. "The Return-risk Performance of Selected Pension Fund in OECD with Focus on the Czech Pension System," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 64(6), pages 1981-1988.

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