High sharpe strategies (eg. selling vol or certain carry trades) often suffer from a hidden negative skew.
If managers underestimate the impact these rare large losses can have, the consistent stream of returns, with low volatility, will give them a false sense of confidence.
This page may contain third-party content, which is provided for information purposes only (not representations/warranties) and should not be considered as an endorsement of its views by Gate, nor as financial or professional advice. See Disclaimer for details.
High sharpe strategies (eg. selling vol or certain carry trades) often suffer from a hidden negative skew.
If managers underestimate the impact these rare large losses can have, the consistent stream of returns, with low volatility, will give them a false sense of confidence.