The Sharpe Ratio of Estimated Efficient Portfolios

15 Pages Posted: 27 Jan 2016 Last revised: 8 Feb 2016

See all articles by Apostolos Kourtis

Apostolos Kourtis

University of East Anglia (UEA) - Norwich Business School

Date Written: January 23, 2016

Abstract

Investors often adopt mean-variance efficient portfolios for achieving superior risk-adjusted returns. However, such portfolios are sensitive to estimation errors, which affect portfolio performance. To understand the impact of estimation errors, I develop simple and intuitive formulas of the squared Sharpe ratio that investors should expect from estimated efficient portfolios. The new formulas show that the expected squared Sharpe ratio is a function of the length of the available data, the number of assets and the maximum attainable Sharpe ratio. My results enable the portfolio manager to assess the value of efficient portfolios as investment vehicles, given the investment environment.

Keywords: Portfolio performance, mean-variance analysis, estimation errors

JEL Classification: C13; C51; C61; G11

Suggested Citation

Kourtis, Apostolos, The Sharpe Ratio of Estimated Efficient Portfolios (January 23, 2016). Finance Research Letters, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2722902

Apostolos Kourtis (Contact Author)

University of East Anglia (UEA) - Norwich Business School ( email )

Norwich
NR4 7TJ
United Kingdom

Register to save articles to
your library

Register

Paper statistics

Downloads
98
Abstract Views
536
rank
274,722
PlumX Metrics