Deflating the Sharpe Ratio

43 Pages Posted: 14 Jul 2014 Last revised: 5 Jul 2015

See all articles by Marcos Lopez de Prado

Marcos Lopez de Prado

Cornell University - Operations Research & Industrial Engineering; AQR Capital Management, LLC

Date Written: July 13, 2014

Abstract

The Deflated Sharpe Ratio (DSR) corrects for two leading sources of performance inflation:

* Non-Normally distributed returns.

* Selection bias under multiple testing.

Keywords: Sharpe ratio, Non-Normal returns, IID, Multiple Testing, Selection Bias

JEL Classification: G0, G1, G2, G15, G24, E44

Suggested Citation

López de Prado, Marcos, Deflating the Sharpe Ratio (July 13, 2014). Available at SSRN: https://ssrn.com/abstract=2465675 or http://dx.doi.org/10.2139/ssrn.2465675

Marcos López de Prado (Contact Author)

Cornell University - Operations Research & Industrial Engineering ( email )

237 Rhodes Hall
Ithaca, NY 14853
United States

HOME PAGE: http://www.orie.cornell.edu

AQR Capital Management, LLC

One Greenwich Plaza
Greenwich, CT 06830
United States

HOME PAGE: http://www.aqr.com

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