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How Do You Measure the Sharp Ratio?
It's remarkable to me that it's been so many years and we still make the mistake of operating it like a mean and variance world. People will take a look at different investment strategies and pick the one with the highest sharp ratio. The high ratio might be a strategy that is got a giant downside, so it's got negative skew. And then the lower sharp ratio, maybe t has the positive skew. So so the variation in the sharp ratio is purely explained by the risk. I've got an exam question that i've used, and hopefully my students don't listen to your yer. Podga: What do you think s alfha, is just a compensation for taking risks
For this week’s episode (our longest to date), we get together with the legendary Professor Campbell R. Harvey and take a deep dive into a diverse range of topics that draw on his incredible breadth of knowledge and extensive research. Campbell is the Professor of International Business at Duke University and is also a Research Associate at the National Bureau of Economic Research. In 2016 he served as the President of the American Finance Association, and from 2006 to 2012 he occupied the incredibly demanding role of Editor for the Journal of Finance. One of his earliest achievements was identifying the inverted yield curve’s ability to predict a recession, a highly regarded metric that is near-ubiquitous in its implementation. For the first half of our conversation, we focus on his research in areas like skewness and emerging economies. We cover specific topics like the factor zoo, why it’s problematic, and how Campbell, along with his student Yan Lui, found through their research that approximately half of the published empirical research in finance at the time was, in fact, false. We also unpack his most downloaded paper entitled The Golden Dilemma and get into the intricacies of why gold is an unreliable inflation hedge. For the latter half of our conversation, we hear about Campbell’s latest book DeFi and the Future of Finance along with his most recent research. Discover how Campbell first became interested in the topic several years ago and decided to put together a course for his students. We also delve into the rise of decentralized finance (DeFi) and how we can expect it to shape global finance, trading, and the future of the internet. Join us today for this essential episode on everything from the pitfalls of academia, to emerging markets, to Bitcoin, and much more!
Key Points From This Episode:
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Listen to the best highlights from the podcasts you love and dive into the full episode