4
$\begingroup$

I am currently writing a paper about the performance characteristics of alternative energy equity indexes and am therefore comparing them to their benchmark indexes (msci world, etc). To calculate the Sharpe Ratio i first take the logarithmic difference of monthly index returns and then subtract it by 1 month LIBOR USD rate over my complete dataset (starting 2002). Afterwards i simply take the monthly mean excess return (as above) divided by the STDEV of the index returns. To annualise the mean monthly excess return and the STDEV i use the following formulas respectively: MEAN*12 and STDEV*SQRT(12). Overview

My results are mostly negative Sharpe Ratios, now i am wondering if this has to do with the timeseries being affected by the 08 crisis and wether the 1 month LIBOR is the correct riskfree asset?

$\endgroup$

1 Answer 1

3
$\begingroup$

I do not have access to the exact time-series of the MSCI world, but looking at the returns from the tracking ETF, since 2001 the average return is negative. Thus regardless of the risk-free you use you will get a negative sharpe ratio.

$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge that you have read and understand our privacy policy and code of conduct.

Not the answer you're looking for? Browse other questions tagged or ask your own question.