Market climates skew fund performance rankings, misleading investors in turbulent times.
The article shows that the Sharpe ratio of investment funds can be influenced by the overall market conditions. Funds with high risk can appear to perform better in bad markets, and vice versa. This means the Sharpe ratio may not always accurately reflect a fund's performance, especially during extreme market conditions. The researchers suggest using a "normalised" Sharpe ratio to account for these biases in future studies.