Bias Ratios Vs. Sharpe Ratios
Since the Sharpe Ratio measures risk-adjusted returns, and valuation biases are expected to understate volatility, one might reasonably expect a relationship between the two. For example, an unexpectedly high Sharpe Ratio may be a flag for skeptical practitioners to detect smoothing . The data does not support a strong statistical relationship between a high Bias Ratio and a high Sharpe Ratio. High Bias Ratios exist only in strategies that have traditionally exhibited high Sharpe Ratios, but plenty of examples exist of funds in such strategies with high Bias Ratios and low Sharpe Ratios. The prevalence of low Bias Ratio funds within all strategies further attenuates any relationship between the two.
Read more about this topic: Bias Ratio (finance), Contrast To Other Metrics
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