The Hidden Sharpe Ratio: US equities max Sharpe of 7.4, far above benchmarks
PtrPomorski · x · 2026-11-16
The paper "The Hidden Sharpe Ratio" estimates the maximum Sharpe ratio (MSR) directly without constructing portfolios. For US equities it finds a maximum of 7.4 (5.0 excluding microcaps), far above existing benchmarks of 1–4, and explains why regularized Markowitz portfolios systematically fall short. The plotted dynamics show nonlinear weights substantially raise MSR in every size group except mega, and characteristics introduced after 2004 contribute little additional Sharpe ratio.
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