AdvancedNumeric answer
Scoring a forecast out of sample · Part 2 of 3
You forecast next-day index returns. Over 500 out-of-sample days, the forecast’s mean squared error is 3.96 (in per cent squared); a forecast equal to the historical mean has mean squared error 4.00.
Assume the unconditional mean return is zero and a mean–variance investor scales the position in proportion to the forecast. What annualised Sharpe ratio can that 1% out-of-sample R² support, using 252 days?
Answer with a number. Fractions, powers and expressions like 23/6 or C(52,5) are read correctly in practice.
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