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Author: jrr7 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 297  
Subject: Re: if volatility=risk then know this Date: 5/15/2000 1:05 PM
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I'm not sure what Sharpe ratio signifies, but it seems to be some kind of risk-adjusted return. I don't see why the "excess return" should be divided by the standard dev--would the results be different if it divided by, SD squared?

Anyway, it's interesting that the short-term seems to show that there is little "risk". Most of the data is from a period where there was not much short-term volatility, so that skews the results. I wonder if they did a similar study on the last 5 years, what would the curve look like.

I'm not surprised to see the graph take that sharp upturn near the end - longer holding periods tend to mitigate final-value risk.

However, my usual complaint applies: this assumes one has a lump sum and buys the portfolio all at once, then holds until the end. Some investors are going to be buying continually during the period, perhaps increasing their purchases as time goes by.

So, sharpe ratio is a good measure of risk for some investors, but not others.
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