The Best Strategy: A Fresh Look at the Sharpe Ratio

In investment, the Sharpe Ratio is used to measure the performance of a strategy. But how do you know if your strategy is the best among many options? Enter the Intersection-Union Test. This test is like a competition where you compare the Sharpe Ratio of your benchmark strategy with others. The cool thing about this test is that it doesn't assume returns behave in a certain way, like some other tests do. You might be wondering, "How does this test work in the real world? " Well, researchers tried it out using data from G7 countries. They found that it's tough to get solid results because of the lack of data. This isn't surprising; in finance, getting reliable data can be a challenge. So, what's the takeaway? While the Intersection-Union Test sounds promising, it may not always work as expected due to real-world data limitations. It's like trying to find a needle in a haystack when the stack is covered in shadows.