I'm puzzled about certain parameters in calculating the annualized Sharpe Ratio using monthly return data.
Average excess return: Does this mean the arithmetic average of all the monthly excess returns? Or should I calculate the rate of monthly return that, if compounded, will result in the overall excess return of the portfolio?
Risk-free rate: The debate of this being 0, the T-bill rate, or a baseline porfolio aside, if I were to use a T-bill rate as risk-free rate, then should the selected time period correspond to the rebalancing period of my portfolio or the entire duration of the portfolio's return?
Thank you in advance!