Problem 239 of 333MediumStatisticsP239

Sharpe ratio with autocorrelated returns

A fund reports an annualized Sharpe ratio of 1.5, computed as $\sqrt{12}$ times its monthly Sharpe. Its monthly returns follow an AR(1) with $\phi = 0.3$ , a common pattern for funds holding illiquid, smoothly marked assets. What is the annual Sharpe ratio once the autocorrelation is accounted for?
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