I am struggling with the calculation of the Sharpe ratio. I am wondering whether to calculate the daily excess returns with today's risk free rate of return or the risk free rates corresponding to the date of the return observations?
E.g., I have the annualized fund returns
r_fund and the risk free rate of return, which is the daily 3-months US treasury bill rates
r_f. Today's risk free rate of return is 0.27% p.a.
date r_fund r_f excess(r_fund-r_f) 2016-01-05 0.200 0.25 -0.050 2016-01-07 0.800 0.26 0.540 2016-01-08 0.900 0.24 0.660 ...
Thus, should I calculate the excess return as shown in the table above or just subtract today's
r_f (0.27%) from each