Your friend Leonard wants you to invest in his new fund and makes the following pitch: 'I've
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Question:
Your friend Leonard wants you to invest in his new fund and makes the following pitch:
'I've been working for the past few months with accounting statements and historical trading data and came up with the following strategy: long stocks that have a high adjusted operating leverage and short stocks that have a low adjusted operating leverage. Adjusted operating leverage means that operating leverage is divided by the trading volume in the stock over the past four months. This strategy works great since its Sharpe ratio is close to one!'
Based on his pitch, would you invest in your friend's fund? Explain your answer.
Related Book For
Financial Accounting
ISBN: 978-0134725987
12th edition
Authors: C. William Thomas, Wendy M. Tietz, Walter T. Harrison Jr.
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