Removing the Upward Bias of In-sample Optimized Sharpe Ratios
March 15, 2016 - Big Ideas
How can investors easily estimate the degradation from optimized in-sample Sharpe ratio to out-of-sample expected Sharpe ratio? In their February 2016 paper entitled “Noise Fit, Estimation Error and a Sharpe Information Criterion”, Dirk Paulsen and Jakob Sohl derive a simple correction for the upward bias in an optimized in-sample Sharpe ratio. The upward bias derives from fitting: (1) random… Keep Reading