Unforseen

1) It may simply mean that SD(based on annual return) < SD(based on monthly return) and etc.
It's the "smoothing", I think.

2) I also have a difficulty in understanding it. It is more a general problem than specific to Sharpe ratio.

SD(based on monthly return) = SD_M x sqrt(12)
R > Sum(12 monthly return)=Avg(monthly return)*12. It could be "<" in a bear market due to compounding.

But we usually use avg(monthly return) in SD calculation....kind of inconsistent.

PS. R and SD here are annualized.



Edited 1 time(s). Last edit at Monday, April 4, 2011 at 10:43AM by deriv108.