4.5.2. Sharpe Ratio

The Sharpe ratio, developed by Sharpe (1966), is one of the most commonly used reward-to-risk measures, but it does not provide the testing of the ratio. To circumvent the limitation, Lo and others developed the testing statistics for the Sharpe ratio. Leung and Wong (2008a) extended the theory further by establishing the testing statistic to multivariate settings and developing the asymptotic distribution of the statistic and related properties. Chow et al. (2019b) showed the relationship between SD and the Sharpe ratio. Wong et al. (2012) introduced the mixed Sharpe ratio to the theory and showed that the mixed Sharpe ratio changes over time.
