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I am hoping to determine the practical implications of the Andy Lo paper criticizing the use of a scaling factor in converting periodic Sharpe ratio to annualized Sharpe ratio. I am particularly interested in knowing more about the validity of using a scaling factor using quarterly return data. I welcome any thought on how best to approach Sharpe ratio using quarterly data.

Additionally I am confuse about how to interpret annualized Sharpe ratio. It is not clear how interpretation changes from non annualized to annualized Sharpe.

Sorry for my English I am from Hong Kong.

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    $\begingroup$ Depends on the amount of serial correlation in those quarterly returns. Also it depends on what you do with those ratios. His point is that the Sharpe ratio calculated from say annual data might not really be 2 times the Sharpe ratio calculated for the strategy’s quarterly returns. But if you just compare the Sharpe ratios of quarterly returns of two strategies, the scaling should be innocuous. $\endgroup$
    – fesman
    Sep 11, 2021 at 17:21
  • $\begingroup$ Great answer. Thank you. $\endgroup$
    – Jason008
    Sep 11, 2021 at 17:55
  • $\begingroup$ Could you add any note to interpreting annualized vs. quarterly? I suppose when you see Sharpe ratio it is convention to use annualized Sharpe to keep things standard across comparison? $\endgroup$
    – Jason008
    Sep 11, 2021 at 17:55

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