Question

In: Finance

The analyst Smith would like to conduct a test for the Sharpe Ratio of US equity...

The analyst Smith would like to conduct a test for the Sharpe Ratio of US equity funds over a time period if the mean of the Sharpe Ratios of equity funds is greater than the value of one. Smith collects 20 funds of monthly returns over two years.

Which of the following statements is CORRECT?

a.) This is a left tail test with large sample.

b.) This is a right tail test with small sample.

c.) This is a left tail test with small sample.

d.) This is a right tail test with large sample

Solutions

Expert Solution

The analyst Smith would like to conduct a test for the Sharpe Ratio of US equity funds over a time period if the mean of the Sharpe Ratios of equity funds is greater than the value of one. Smith collects 20 funds of monthly returns over two years.

The CORRECT statement is – b.) This is a right tail test with small sample.

Therefore correct answer is option b.

• Smith collects 20 funds of monthly returns over two years; any sample size below 30 is considered as a small sample.

• Conduct a test for the Sharpe Ratio of US equity funds over a time period if the mean of the Sharpe Ratios of equity funds is greater than the value of one where greater than is used for a right tail test.

Therefore this is a right tail test with small sample.


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