FoundationMultiple choice
The best of a hundred backtests · Part 1 of 3
A researcher tries 100 variants of a signal on five years of daily data. In truth every variant has a Sharpe ratio of zero. The best variant shows an annualised in-sample Sharpe ratio of 1.3.
Roughly what is the standard error of an annualised Sharpe ratio estimated on five years of data?
- AAbout 0.2, from one over the five years
- BAbout 0.45
- CAbout 0.03, from one over the square root of 1,260 days
- DAbout 2.2, the square root of five
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