Knowing 4 will be enough, I think.
assumes normality
assumes liquidity
assumes serieally uncorrelated returns
i have still to revise equity portfolio+corpgovernance…but i remember the limitations of the sharpe ratio being quite exhaustive in the hedgefund reading…
[1]Time dependent ->rises with square root of time
[2] inappropriate for normally distributed returns
[3]illiquid holdings bias ratio upwards
[4]serial correlation biases ratio upwards
[5]no predicitive capability for hf
[6] does not account for correlations across other assets
[7]Can be gamed
[2] inappropriate for normally distributed returns
shouldn’t this read as ONLY appropriate for Normally distributed returns?
oops…NON normally dist!