FNCE 239 Lecture Notes - Lecture 4: Sharpe Ratio, Time Series, Insider Trading

• School: UPenn
• Department: Finance
• Course: FNCE 239
• Professor: N I K O L A I R O U S S A N O V

Document Summary

Is strong form efficiency in line with emh: strong form efficiency- incorporates all information, public and private. However, studies prove that insider trading is profitable -> the market is not strong form efficient. Data show that the dollar depreciates right before fed announcement days. I: as long as alpha is not zero, the combined portfolio will result in a higher sharpe ratio. How to calculate sharpe ratio from regressions: calculate sigma (not squared) for the fund and the s&p using the following: =(1 r2) (sd2: calculate the sharpe ratio using the following: o o. Incorrect: price = npv of e[cf] o: correct: price = npv of e[cf] using the appropriate discount rate, where the discount rate reflects appropriate things such as risk. ~d t+ j (1+~r t+ k) j k=1: price = the actual future cash flows divided by the actual future returns o, this equation uses actual returns and actual dividends.