Egon Sharpe Pearson

Fritz Heider and Egon Brunswik

During their common time in Austria (and Germany), Fritz Heider and Egon Brunswik knew each other quite well, meeting for professional interchange of their ideas and thoughts, which they mutually highly respected (compare the late autobiography by Heider, 1983). They both worked on problems of how the human being copes with his environment; later on (in the early 50s), they both were regarded a...

Sharpe Ratio Practice Note

The Sharpe Ratio Efficient Frontier

We evaluate the probability that an estimated Sharpe ratio exceeds a given threshold in presence of non-Normal returns. We show that this new uncertainty-adjusted investment skill metric (called Probabilistic Sharpe ratio, or PSR) has a number of important applications: First, it allows us to establish the track record length needed for rejecting the hypothesis that a measured Sharpe ratio is b...

The Statistics of Sharpe Ratios

The building blocks of the Sharpe ratio—expected returns and volatilities— are unknown quantities that must be estimated statistically and are, therefore, subject to estimation error. This raises the natural question: How accurately are Sharpe ratios measured? To address this question, I derive explicit expressions for the statistical distribution of the Sharpe ratio using standard asymptotic t...

The Sharpe Ratio Indifference Curve