[R-SIG-Finance] performance evaluation and sharpe ratio

[david.jessop at ubs.com]

Hi

A recent paper by Ledoit and Wolf
(http://www.iew.uzh.ch/chairs/wolf/team/wolf/publications/jef_2008pdf.pd
f) gives you a robust test for two Sharpe ratios being different.  Even
better is if you go on one of their web sites (Wolf's I believe), you'll
find a R routine to do the test for you. 

And you should definitely look out of sample.

Regards,

David Jessop


------------------------------

Message: 4
Date: Tue, 09 Dec 2008 16:50:57 +0100
From: Bastian Offermann <bastian2507hk at yahoo.co.uk>
Subject: [R-SIG-Finance] performance evaluation and sharpe ratio
To: r-sig-finance at stat.math.ethz.ch

Content-Type: text/plain; charset=ISO-8859-15; format=flowed

Hello all,

i am currently doing some portfolio resampling experiments and wonder
how to best evaluate different investment strategies based on the sharpe
ratio.

i do have a time series for 2 equity indices from jan 2002 till dec 2007
of daily log returns (1548 observations) and perform an unconstrained
markowitz optimization to obtain both portfolio weights for a given
return level.

my experiment is based on deMiguel (2007) performing further markowitz
optimizations on subsamples of 1300 observations each, i.e. the first
sample is r_1, r_2, ..., r_1300, the 2nd sample is r_2, r_3, ..., r_1301
and so on. i finally obtain 249 subsamples and as many portfolio weight
vectors.

how do i best examine each strategy using the sharpe ratio? 
in-sample-test? out-of-sample test?

any suggestion is highly appreciated. thanks in advance.

kind regards

b



------------------------------

Issued by UBS AG or affiliates to professional investors for 
information only and its accuracy/completeness is not guaranteed. 
All opinions may change without notice and may differ to 
opinions/recommendations expressed by other business areas of UBS. 
UBS may maintain long/short positions and trade in instruments 
referred to. Unless stated otherwise, this is not a personal 
recommendation, offer or solicitation to buy/sell and any 
prices/quotations are indicative only. UBS may provide investment 
banking and other services to, and/or its employees may be directors 
of, companies referred to. To the extent permitted by law, UBS does 
not accept any liability arising from the use of this communication.

 © UBS 2008.  All rights reserved. Intended for recipient only
and not for further distribution without the consent of UBS.

UBS Limited is a company registered in England & Wales under company
number 2035362, whose registered office is at 1 Finsbury Avenue,
London, EC2M 2PP, United Kingdom.

UBS AG (London Branch) is registered as a branch of a foreign company
under number BR004507, whose registered office is at
1 Finsbury Avenue, London, EC2M 2PP, United Kingdom.

UBS Clearing and Execution Services Limited is a company registered
in England & Wales under company number 03123037, whose registered
office is at 1 Finsbury Avenue, London, EC2M 2PP, United Kingdom.