smuggycfa

Here’s a disturbing counter point for the schweez:
consider the Singer-Terhaar approach for defining the risk premium of an asset class in integrated markets
RP(ac) = Std Dev(ac) * Corr(ac,GIM) * [RP(GIM) / Std Dev(GIM)]
where RP = Risk Premium or R - Rf; and GIM = Global Investable Market
rearranging this formula and expanding we have:
[R(ac) - Rf] / Std Dev(ac) = [R(GIM) - Rf] / Std Dev(GIM) * Corr(ac,GIM)
or rather Sharpe(ac) = Sharpe(GIM) * Corr(ac,GIM)
Now the GIM is certainly a diversified portfolio so why can we use the sharpe ratio in this situation? By Schweser’s rationale the ratio used should have been the Treynor ratio.
If I am wrong someone please explain it to me, but I think Schweser may have taken to many assumptions in thier conclusion to this answer.