Long-term investors beware: Sharpe ratios may mislead asset allocation decisions!
The study shows that using Sharpe ratio rankings for asset allocation can be misleading for long-term investors. Stocks and bonds may not perform as expected over longer timeframes. Also, practical limitations on leverage and margin can lead to errors in asset allocation decisions. A recent article suggesting a large bond component in long-term portfolios highlights these potential errors and offers alternative methods for better decision-making.