When the in-sample Sharpe ratio is obtained by optimizing over a k-dimensional parameter space, it is a biased estimator for what can be expected on unseen data (out-of-sample). We derive (1) an unbiased estimator adjusting for both sources of bias: noise fit and estimation error. We then show (2) how to use the adjust…
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48 results for “Sharpe Ratio Information Criterion”
The paper describes a method to infer the signal-to-noise ratio in portfolio optimization.
problem Estimating the signal-to-noise ratio in portfolio optimization problems.
method A statistic similar to the Sharpe Ratio Information Criterion is used for inference.
result The method works well for reasonable sample and asset universe sizes.
The paper proposes an asset allocation strategy using the Sortino ratio for better performance.
problem Traditional asset allocation methods like the Sharpe ratio do not penalize negative returns adequately.
method The Sortino ratio is used to maximize asset allocation, penalizing only negative return variances.
result The Sortino ratio-based strategy outperforms traditional methods like the Kelly criterion.
This paper optimizes portfolio selection by penalizing tracking error, improving Sharpe ratio.
problem Optimizing portfolio allocation with a penalty for deviation from a reference portfolio.
method Formulated as a McKean-Vlasov control problem, provides explicit solutions and asymptotic expansions.
result The penalized portfolio strategy outperforms standard mean-variance and reference portfolios in most cases.
Omega and Sharpe ratioq-fin.RM
Omega ratio, defined as the probability-weighted ratio of gains over losses at a given level of expected return, has been advocated as a better performance indicator compared to Sharpe and Sortino ratio as it depends on the full return distribution and hence encapsulates all information about risk and return. We comput…
Deep Learning in Asset Pricingq-fin.ST
We use deep neural networks to estimate an asset pricing model for individual stock returns that takes advantage of the vast amount of conditioning information, while keeping a fully flexible form and accounting for time-variation. The key innovations are to use the fundamental no-arbitrage condition as criterion funct…
Sharpe ratio (sometimes also referred to as information ratio) is widely used in asset management to compare and benchmark funds and asset managers. It computes the ratio of the (excess) net return over the strategy standard deviation. However, the elements to compute the Sharpe ratio, namely, the expected returns and …
Investment strategy using fractional Kelly portfolios for better growth expectations.
problem Understanding optimal growth strategies for investors with varying risk appetites.
method Developed a mathematical framework for fractional-Kelly portfolios, analyzing Sharpe ratios and log-returns.
result Fractional Kelly portfolios provide a simple distributional relationship between Sharpe ratio, fractional coefficient, and log-returns.
Sharp analysis of power iteration for tensor PCA, improving convergence and stopping criteria.
problem Analyzing the power iteration algorithm for tensor PCA to improve convergence and stopping criteria.
method Sharp bounds on the number of iterations, revealing a smaller algorithmic threshold, proposing a stopping criterion.
result Sharp bounds on the number of iterations required for power method to converge, revealing a smaller algorithmic threshold than previously conjectured.
Roy's `Safety First' criterion for selecting one risky asset from many is adapted to the case of non-normal returns, via Cornish Fisher expansion. The resulting investment objective is consistent with first order stochastic dominance, and is equal to the Sharpe ratio for the case of normal returns. An investor selectin…
A new tradeoff between regularization and sharpness improves model performance in overparameterized settings.
problem Improving model performance in overparameterized settings with minimum-norm interpolators.
method Proposes a regularization-sharpness tradeoff for overparameterized linear regression with an ℓ^p penalty.
result Empirical validation shows the tradeoff terms can distinguish performant linear interpolators.
Enhances investment performance by leveraging cross-market information.
problem Maximizing portfolio performance in asset markets with shared characteristics.
method Transfer learning applied to portfolio optimization.
result Achieves maximum Sharpe ratio asymptotically.
The support recovery problem consists of determining a sparse subset of variables that is relevant in generating a set of observations. In this paper, we study the support recovery problem in the phase retrieval model consisting of noisy phaseless measurements, which arises in a diverse range of settings such as optica…
Modeling financial markets with sandpile model to understand price volatility and arbitrage constraints.
problem Understanding price volatility and arbitrage constraints in financial markets.
method Uses a sandpile model to represent information and price changes, linking size of price volatility to the scaling law of avalanches.
result Identifies a structural tension between non-arbitrage condition and price adjustments consistent with a constant Sharpe ratio.
Optimal option portfolios under Sharpe Ratio maximization with skew-elliptical t-distributed returns
problem Optimal option portfolios under Sharpe Ratio maximization
method Formulation for explicit portfolio weights
result Different optimal portfolios for Sharpe Ratio and return-to-Value-at-Risk (VaR) ratio
Classification outperforms regression in portfolio construction, yielding higher Sharpe ratios.
problem Determining which machine learning approach (classification vs. regression) is more effective for portfolio construction.
method Used stacking ensemble of gradient boosted tree, random forest, and neural network models.
result Classification yields higher Sharpe ratios and economically significant alphas compared to regression.
The Sharpe ratio is a way to compare the excess returns (over the risk free asset) of portfolios for each unit of volatility that is generated by a portfolio. In this paper we introduce a robust Sharpe ratio portfolio under the assumption that the risk free asset is unknown. We propose a robust portfolio that maximizes…
Unified framework linking firm signals and cross-asset spillovers for SDF estimation.
problem Estimating SDF with cross-asset spillovers and firm-level predictive signals.
method Maximizing Sharpe ratio to jointly estimate signals and spillovers, yielding interpretable SDF.
result SDF consistently outperforms benchmarks across various investment universes and market states.
We discuss - in what is intended to be a pedagogical fashion - generalized "mean-to-risk" ratios for portfolio optimization. The Sharpe ratio is only one example of such generalized "mean-to-risk" ratios. Another example is what we term the Fano ratio (which, unlike the Sharpe ratio, is independent of the time horizon)…
Sharpe ratio is widely used in asset management to compare and benchmark funds and asset managers. It computes the ratio of the excess return over the strategy standard deviation. However, the elements to compute the Sharpe ratio, namely, the expected returns and the volatilities are unknown numbers and need to be esti…
This article is the term paper of the course Investments. We mainly focus on modeling long-term investment decisions of a typical utility-maximizing individual, with features of Chinese stock market in perspective. We adopt an OR based methodology with market information as input parameters to carry out the solution. T…
Post hoc test for Sharpe ratio improves pairwise comparisons.
problem Improving pairwise comparisons of Sharpe ratios.
method Analogous to Tukey's test, applied after rejecting equal Signal-Noise ratios.
result Maintains nominal type I rate and is moderately powerful.
Estimates true Sharpe ratio of selected assets with various methods.
problem Estimating the true Sharpe ratio of a selected asset with high in-sample ratio.
method Polyhedral lemma, James Stein shrinkage, debiasing, thresholding, empirical Bayes.
result James Stein estimator performs best across various parameter values.
Enhancing Cross-Sectional Currency Strategies by Context-Aware Learning to Rank with Self-Attentionq-fin.PM
Enhances currency strategy Sharpe ratio by 30% using context-aware Learning to Rank.
problem Sub-optimal ranking of assets during critical market periods.
method Context-aware Learning to Rank model based on Transformer architecture.
result Significantly improves Sharpe ratio and various performance metrics.
Sharp criterion for Chern-Gauss-Bonnet integral using Q curvature.
problem Quantifying the Chern-Gauss-Bonnet integral using Q curvature.
method New approach involving singular integral estimation.
result Derivation of asymptotic formula for Q curvature equation.
A simple example shows that losing all money is compatible with a very high Sharpe ratio (as computed after losing all money). However, the only way that the Sharpe ratio can be high while losing money is that there is a period in which all or almost all money is lost. This note explores the best achievable Sharpe and …
The study evaluates forecast risk-adjusted performance using various metrics.
problem Evaluating forecast reliability beyond accuracy.
method Risk-adjusted performance measures (Sharpe, Sortino, Omega ratios) and Edge Ratio.
result Machine learning models often offer attractive risk profiles but not necessarily higher reliability.
Study connects weighted isoperimetric problems to nonlocal elliptic operator extensions.
problem Sharp inequalities for weighted Poisson integrals and their extremizers.
method Formulates variational problem on conformal metric measure space.
result Sharp inequalities are linked to variational problem on CCE manifolds.
The implied Sharpe ratioq-fin.MF
In an incomplete market, including liquidly-traded European options in an investment portfolio could potentially improve the expected terminal utility for a risk-averse investor. However, unlike the Sharpe ratio, which provides a concise measure of the relative investment attractiveness of different underlying risky as…
Paper introduces Market-adaptive Ratio for better portfolio management.
problem Traditional risk-adjusted ratios fail to account for bull and bear markets.
method Integrates parameter and uses reinforcement learning to adjust portfolio allocations dynamically.
result Market-adaptive Ratio outperforms traditional ratios in bull and bear markets.
Modeling risk and performance with Levy-stable distributions.
problem Understanding risk and performance in financial markets with non-Gaussian distributions.
method Developed a finite-horizon model using Levy-stable scaling, identified parameters from data, derived formulas for various financial ratios.
result Horizon-correct formulas for risk measures are derived and validated across different horizons.
Sharpe Ratio Analysis in High Dimensions: Residual-Based Nodewise Regression in Factor Modelsq-fin.PM
New method for Sharpe ratio analysis in high dimensions using residual-based nodewise regression.
problem Consistency of Sharpe ratio estimators in high-dimensional portfolios.
method Residual-based nodewise regression for estimating precision matrix of errors and returns.
result Consistent Sharpe ratio estimators in various portfolio settings.
The question addressed in this paper is the performance of the optimal strategy, and the impact of partial information. The setting we consider is that of a stochastic asset price model where the trend follows an unobservable Ornstein-Uhlenbeck process. We focus on the optimal strategy with a logarithmic utility functi…
Great year, bad Sharpe? A note on the joint distribution of performance and risk-adjusted returnq-fin.ST
Investments with best performance are not associated with best Sharpe ratios.
problem The relationship between performance and risk-adjusted return (Sharpe ratio) is counterintuitive for heavy-tailed distributions.
method Synthetic and real data analysis of returns distributions.
result The best-performing investments are not the best in terms of Sharpe ratio, and vice versa.
We prove that the Omega measure, which considers all moments when assessing portfolio performance, is equivalent to the widely used Sharpe ratio under jointly elliptic distributions of returns. Portfolio optimization of the Sharpe ratio is then explored, with an active-set algorithm presented for markets prohibiting sh…
GA-MSSR optimizes forex trading rules for higher returns and reduced risk.
problem Noisy market data affects the consistency and profitability of trading algorithms.
method Optimized trading rules derived from technical indicators using a Genetic Algorithm.
result GA-MSSR achieved superior performance with significant positive returns and reduced risk factors.
We present a new methodology of computing incremental contribution for performance ratios for portfolio like Sharpe, Treynor, Calmar or Sterling ratios. Using Euler's homogeneous function theorem, we are able to decompose these performance ratios as a linear combination of individual modified performance ratios. This a…
Grover search for optimal portfolios based on Sharpe ratio.
problem Finding optimal portfolios with specific risk-return characteristics.
method Grover's algorithm applied to portfolio selection with oracles.
result Quantum algorithms can efficiently find optimal portfolios.
Double descent in portfolio optimization shows improved performance with complexity, then declines, due to overfitting.
problem Improving portfolio optimization performance with model complexity.
method Investigates the relationship between model complexity and out-of-sample performance in mean-variance portfolio optimization.
result Performance of low-dimensional models initially improves with complexity but declines due to overfitting. High-dimensional models show double ascent Sharpe ratio curve.
A new deep learning model improves asset pricing predictions.
problem Improving asset pricing models for better predictions.
method Pseudo-Siamese Network (SNAP) for conditional asset pricing.
result The SNAP model outperforms benchmarks in out-of-sample prediction and Sharpe ratio.
Tian's criterion for K-stability states that a Fano variety of dimension whose alpha invariant is greater than is K-stable. We show that this criterion is sharp by constructing singular Fano varieties with alpha invariants that are not K-polystable for sufficiently large . We also…
We introduce a new measure of performance of investment strategies, the monotone Sharpe ratio. We study its properties, establish a connection with coherent risk measures, and obtain an efficient representation for using in applications.
AI predicts stock winners with 2.43 Sharpe ratio, but returns are highly concentrated.
problem Predicting stock returns with AI, focusing on identifying top winners.
method Deployed a state-of-the-art LLM to autonomously search the web for stock attractiveness, avoiding look-ahead bias.
result AI can generate alpha by identifying top winners, but returns are highly concentrated.
The Sharpe ratio is the most widely used risk metric in the quantitative finance community - amazingly, essentially everyone gets it wrong. In this note, we will make a quixotic effort to rectify the situation.
The paper optimizes portfolios using clustering and Sharpe ratio-based optimization.
problem Optimizing portfolio performance in financial modeling.
method Combines K-Means clustering for asset segmentation and Sharpe ratio-based optimization.
result Optimized portfolios outperform traditional equal-weighted benchmarks.
This paper uses alternative data to forecast Japanese real estate performance.
problem Accurate rent and price forecasting in Japanese real estate markets.
method Created a comprehensive house price index using over 5 million transactions and economic factors.
result Alternative data variables can forecast real estate performance effectively.
The VIX is used to enhance quantitative trading strategies.
problem Improving Sharpe ratio and reducing trading risks in quantitative strategies.
method Postprocessing quantitative strategies with VIX signals.
result Increased Sharpe ratio and reduced trading risks.
To Trade or Not to Trade: An Agentic Approach to Estimating Market Risk Improves Trading Decisionsq-fin.ST
Agentic LLMs improve trading by estimating market risk.
problem Lack of principled model-building step in agentic frameworks for finance.
method Developed an agentic system using LLMs to discover stochastic differential equations for financial time series.
result Model-informed trading strategies outperform standard LLM-based agents, improving Sharpe ratios.