The Sharpe ratio is calculated by dividing the mean excess return of the index by its volatility, annualized over the horizon under consideration. In some years, the risk-free rate used to compute excess returns can be negative. The higher the Sharpe ratio, the higher the excess returns for a unit of risk.

SR_{T} = \frac{\bar{ER_{T}}}{\sigma_{T}} |

where:

\bar{ER_{T}} denotes the annualised mean Excess Returns of the index.

\sigma_{T} denotes the annualised Index Return Volatility measure.

We compute sharpe ratios depending on the choice of currency to report returns, assuming that for the 'risk-free' asset for any given investor is the domestic 3-month risk-free asset. A Sharpe Ratio based on local currency returns and risk-free rates is also computed using local currency excess returns, as described here.

We also compute an **Adjusted Sharpe ratio **to account for the skewness and excess kurtosis in the returns distribution

AdjSR_{T} = SR_{T} \times [ 1 + \frac {S} {6} \times SR_{T} - \frac {(K - 3)} {24} \times SR_{T}^2] |

where:

S is the skewness of the return distribution

K is the excess kurtosis of the return distribution