An Intersection–Union Test for the Sharpe Ratio

Gabriel Frahm
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Gabriel Frahm: Chair of Applied Stochastics and Risk Management, Department of Mathematics and Statistics, Helmut Schmidt University, Holstenhofweg 85, D-22043 Hamburg, Germany

Risks, 2018, vol. 6, issue 2, 1-13

Abstract: An intersection–union test for supporting the hypothesis that a given investment strategy is optimal among a set of alternatives is presented. It compares the Sharpe ratio of the benchmark with that of each other strategy. The intersection–union test takes serial dependence into account and does not presume that asset returns are multivariate normally distributed. An empirical study based on the G–7 countries demonstrates that it is hard to find significant results due to the lack of data, which confirms a general observation in empirical finance.

Keywords: ergodicity; Gordin’s condition; heteroscedasticity; intersection–union test; Jobson–Korkie test; performance measurement; Sharpe ratio (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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