Before revision: The total duration of drawdowns is shown to be an efficient and robust estimator of Sharpe ratios , especially for heavy-tailed price returns. Because such type of data mechanically reduces the expected total drawdown duration with respect to Gaussian price returns , moment-based estimators are prone to overestimate true Sharpe ratios in leptokurtic market conditions and may further amplify large price returns when they are used by trend-followers .
After revision: The total duration of drawdowns is shown to be an efficient and robust estimator of Sharpe ratios . Its properties are distribution-dependent: the expected total drawdown duration with respect to Gaussian price returns , moment-based estimators are prone to overestimate true Sharpe ratios in leptokurtic market conditions and may further amplify large price returns when they are used by trend-followers .