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Problem 225 of 333MediumStatisticsP225
How long to prove a Sharpe of 1.5?
A trader's strategy has a true annualized Sharpe ratio of 1.5 with i.i.d. returns. You will test : Sharpe with a two-sided test at .
(a) What is the power of the test after 2 years of live returns?
(b) How many years are needed for 90% power?
(c) How does your answer to (b) change if the true Sharpe is 0.5?
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