<p>You should be fine to use negative interest rates for the risk-free rate when calculating a Sharpe ratio. If rates are negative, they are negative. That does not change the calculation of excess returns.</p>
<p>One point, however: EURIBOR and EONIA are interbank rates and thus are not risk-free but have a small credit spread above risk-free rates. The <a href="https://www.ecb.europa.eu/paym/initiatives/interest_rate_benchmarks/WG_euro_risk-free_rates/shared/pdf/20191016/2019-10-16_WG_on_euro_RFR_meeting_Frequently_Asked_Questions.pdf" rel="nofollow noreferrer">latest ECB recommendations</a> call for €STR to become a risk-free overnight rate with a transition planned to set EONIA := €STR+8.5 bp going forward.</p>

CC BY-SA 4.0
2020-08-07T07:48:37.280Z
2020-08-07T07:48:37.280Z
kurtosis
<p>currently I am writing my Master-Thesis about SRI-Fonds. For analysing Sharpe Ratios from different Fonds I need to use the risk free rate (e.g. Euribor 3M). Unfortunately I can‘t find anything about dealing with negative risk free rates. Is it useful to calculate with those negative rates or should I prefer a risk free rate about 0% in case it‘s negative?</p>
<p>Thanks a lot for your answers.
Maybe someone had the same problem before...</p>

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2020-08-07T00:56:22.333Z
Since there is no investable asset with a guaranteed 0% return, why is such a change justified?
Brian Romanchuk
<investment><risk><portfolio-theory>
Negative Risk Free Rate Sharpe Ratio
user29948
# Negative Risk Free Rate Sharpe Ratio

(Asked by: username_0 on 2020-08-06)

currently I am writing my Master-Thesis about SRI-Fonds. For analysing Sharpe Ratios from different Fonds I need to use the risk free rate (e.g. Euribor 3M). Unfortunately I can‘t find anything about dealing with negative risk free rates. Is it useful to calculate with those negative rates or should I prefer a risk free rate about 0% in case it‘s negative?

Thanks a lot for your answers.
Maybe someone had the same problem before...

**Tags:** investment, risk, portfolio-theory
> **Comments:**
> **username_1**: Since there is no investable asset with a guaranteed 0% return, why is such a change justified?  

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## 1 answers

### Answer by username_2 on 2020-08-07. Score: 1

You should be fine to use negative interest rates for the risk-free rate when calculating a Sharpe ratio. If rates are negative, they are negative. That does not change the calculation of excess returns.

One point, however: EURIBOR and EONIA are interbank rates and thus are not risk-free but have a small credit spread above risk-free rates. The [latest ECB recommendations](https://www.ecb.europa.eu/paym/initiatives/interest_rate_benchmarks/WG_euro_risk-free_rates/shared/pdf/20191016/2019-10-16_WG_on_euro_RFR_meeting_Frequently_Asked_Questions.pdf) call for €STR to become a risk-free overnight rate with a transition planned to set EONIA := €STR+8.5 bp going forward.


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