Report uncertainty around a Sharpe ratio, especially for smoothed returns.

Family Office Private Wealth Journal · Editorial research desk · 2 November 2026

Companion to The Statistics of Sharpe Ratios by Andrew W. Lo.

Decision in practice

A private-credit manager presents a smooth monthly return stream and an unusually high annualized Sharpe ratio.

Committee assignment

Check valuation frequency and serial dependence. Compare the reported ratio with a calculation that allows for correlated returns and uncertainty.

Record and decision rule

Retain the underlying series. Avoid ranking managers on a small ratio difference when estimation uncertainty dominates.

Illustrative application by the editorial desk. The source authors did not evaluate or endorse this procedure.