in the solution , it said that reduction of the forecast alpha by a factor of 0.3 improve in the squared sharpe ratio by 0.3^2=0.09 if based on solution, S=0.3495 drops compare to before reduction by 0.3 I don’t see why it improve the sharpe ratio… Thanks.
worked on that problem last night and can’t answer question. however, if the book says we’re not responsible for memorizing or deriving the formulas on section 4 - 6, what out of that cobweb of material should we know?
The general steps involved, I’d guess.