Campbell R. Harvey
Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)
November 22, 2013
When evaluating a trading strategy, it is routine to discount the Sharpe ratio from a historical backtest. The reason is simple: there is inevitable data mining by both the researcher and by other researchers in the past. Our paper provides a statistical framework that systematically accounts for these multiple tests. We propose a method to determine the appropriate haircut for any given reported Sharpe ratio.
First Posted to SSRN: October 25, 2013
Number of Pages in PDF File: 25
Keywords: Sharpe ratio, Multiple tests, Backtest, Haircut, Trading Strategies, Out-of-Sample tests, In-Sample tests
JEL Classification: G12, G14, G30, G00, C12, C20, B41working papers series
Date posted: October 27, 2013 ; Last revised: November 27, 2013
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