Sharper asset ranking from total drawdowndurations - Challet

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Sharper asset ranking from total drawdowndurations - Challet

Messagepar Maw » 22 Avr 2019, 16:09

The proposed Sharpe ratio estimator is robust, efficient, and well-behaved as itdoes not rely on moment estimation. Large returns are not regarded as outliers, butcontribute to record statistics in a smooth way. In addition, a real outlier (due e.g.to a data error, or a neglected corporate action) may only create a single spuriousadditional price record, while two outliers of the same magnitude and opposite signshave only a mild influence onR0. Finally, the robustness of the estimator lies inthe fact that the latter is based only on the duration of drawdowns, not on theiramplitudes. This is to be contrasted with other quantities related to drawdowns.For example the expectation of the maximum drawdown of a Brownian motion is aknown function of the Sharpe ratio (Magdon-Ismail et al. 2003), but is very sensitiveto outliers by definition.


Sharper asset ranking from total drawdowndurations - Challet
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