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- 2013-8-23
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Awkward sharpe ratio question
When compared to all other possible portfolios, the portfolio that has the smallest variance would have a Sharpe ratio that:
A) could not be the highest of all possible portfolios.
B) may or may not be the highest of all possible portfolios; there is no general rule.
C) is the highest of all possible portfolios.
Your answer: B was incorrect. The correct answer was A) could not be the highest of all possible portfolios.
Minimizing the variance does not produce the portfolio with the highest Sharpe ratio. A point along the efficient frontier above the minimum variance portfolio will have both a higher return and standard deviation, but it will have a higher Sharpe ratio. (Study Session 18, LOS 66.b)
so i put B because the formula is [E(r) - rfr)]/stddev and just because a portfolio has a small variance (and small stddev) does not necessarily mean it has the higehst sharpe ratio, since the numerator matters too. first off, theire choice A is awkwardly worded: does it mean “it CANNOT be the highest” or “it could be possible that it is not the highest”? if the latter, choice a and b are the same. also, i read their explanation three times and dont get what theyre saying. |
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发表于 2013-4-12 21:42
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