Lo: Sharpe ratios may be overstated
Recent analysis of serial correlation effects in hedge fund returns performed by the Massachusetts Institute of Technology’s professor of finance, Andrew Lo, finds that conventional Sharpe ratios for hedge funds trading illiquid instruments, such as convertibles and fixed income, are overstated by as much as 65%. Analysis performed separately at Citigroup as long as two years ago for use by the bank’s fund of funds also suggests Sharpe ratios are overstated for some illiquid
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