Sharpe ratio calculation
Hello,
I was looking into Sharpe ratio calculation segment of code in stats.m (am using Matlab version of toolkit). I understand the formula, but in most references that I was able to find, annualized Sharpe ratio seems to be calculated simply as follows (when returns vector contains daily excess returns):
sharpeRatio = sqrt(252) * mean(returns) / std(returns);
However, in looking further for explanation of using sqrt(252) factor for annualizing standard deviation of returns, I found reference to Andy Lo paper "The statistics of Sharpe ratios" (https://www.researchgate.net/publication/228139699_The_Statistics_of_Sharpe_Ratios), where this factor is derived starting from an assumption that returns are lognormally distributed. In that light, calculation implemented in toolkit indeed makes more sense to me. Still, anyone else care to comment on this discrepancy?
Thanks.
