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Deflated Sharpe Ratio
The Deflated Sharpe Ratio (DSR) is a statistical method used to determine whether the Sharpe ratio of an investment strategy is statistically significant, developed in 2014 by Marcos López de Prado at Guggenheim Partners and Cornell University, and David H. Bailey (mathematician), David H. Bailey at Lawrence Berkeley National Laboratory. It corrects for selection bias, data dredging, backtest overfitting, sample length, and non-normality in return distributions, providing a more reliable test of financial performance, especially when many trials are evaluated. The application of the DSR, helps practitioners to detect false investment strategies. DSR offers a more precise and robust adjustment for Multiple comparisons problem, multiple testing compared to traditional methods like the Šidák correction because it explicitly models both the selection bias arising from choosing the best among many trials and the estimation uncertainty inherent in Sharpe ratios. Unlike Šidák, which ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Sharpe Ratio
In finance, the Sharpe ratio (also known as the Sharpe index, the Sharpe measure, and the reward-to-variability ratio) measures the performance of an investment such as a security or portfolio compared to a risk-free asset, after adjusting for its risk. It is defined as the difference between the returns of the investment and the risk-free return, divided by the standard deviation of the investment returns. It represents the additional amount of return that an investor receives per unit of increase in risk. It was named after William F. Sharpe, who developed it in 1966. Definition Since its revision by the original author, William Sharpe, in 1994, the '' ex-ante'' Sharpe ratio is defined as: : S_a = \frac = \frac, where R_a is the asset return, R_b is the risk-free return (such as a U.S. Treasury security). E _a-R_b/math> is the expected value of the excess of the asset return over the benchmark return, and is the standard deviation of the asset excess return. The t-sta ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
