Jan

31

Let's be clear that the Sharpe ratio is an extremely flawed measure. It makes perfect sense only in a purely efficient market. Otherwise, there can be plenty of ways to generate a good Sharpe ratio without really adding any value.

Take, for example, investing in timber or other forms of private equity (or like all the side pockets that hedge fund managers are doing these days) and then only marking the investments to market once per quarter. Voila! You can assign near zero volatility to your investments and get a great Sharpe ratio that you put in your powerpoint presentation.


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