Sharpe justification?
There are crucial limitations to this measurement that must be considered, says a leading futures manager
'Be careful what you wish for, as you may just get it¦' The Sharpe ratio is a statistic which aims to sum up the desirability of a risky investment strategy or instrument by dividing the average period return in excess of the risk-free rate by the standard deviation of the return generating process.
Devised in 1966 as a measure of performance for mutual funds, it undoubtedly has some value as a measure of strategy 'quality,' but it also has several crucial limitations.
Furthermore, its
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