Revisiting Hypothesis Testing With the Sharpe Ratio
Description
These are *.rds and *.R files that are the data and code that were used to perform the calculations and prepare the figures for the article Revisiting Hypothesis Testing With the Sharpe Ratio. Here is the abstract: It is shown via numerical simulation, asymptotic approximations and an extension of the algorithm and codebase of the p-value estimator of Ledoit and Wolf (2008) that the hypothesis test that is based on the difference between the Sharpe ratios of a pair of portfolios is of such low power that type-II errors would, in most circumstances of practical interest, be all too frequent. The test is shown to be potentially feasible in practice only if the returns of the paired portfolios under study tend to be strongly positively correlated and if decades of data are available.