Is your Sharpe Ratio is Lying to you? Use this instead
“Although skewness and kurtosis does not affect the point estimate of Sharpe ratio, it greatly impacts its confidence bands, and consequently its statistical significance” Bailey and López de Prado (2012).
In the last video we explained the downfalls of relying on the Central Limit Theorem (CLT) and using the mean and standard deviation to calculate a point estimate of the Sharpe Ratio.
In this video, we’ll delve into the limitations of the Sharpe Ratio, introduce you to the concept of Probabilistic Sharpe Ratio (PSR) developed by Bailey and López de Prado, and guide you through its Python implementation. So, if you’re eager to enhance your understanding of risk and performance metrics, you’re in the right place.
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