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information ratio (X6.9(vi))

Y

yogesh167

Member
Hello

The formula of information ratio says ratio of mean (relative return) divided by SD (relative return) in ch22. Also, it says that relative return and active return are similar.

My question is that we have calculated mean of relative return in X6.9 (iv) but did not use the same while calculating information ratio in X6.9 (vi). Of course, the information of numerator (mean of active return) in part (vi) supersedes the value calculated of mean relative return in part (iv). But just want to know had I used the part (iv) information in calculating information ratio, would that have been wrong?

Thanks in advance.
 
The number calculated in part (iv) is just an expectation based on the asset allocation decision alone. It is not useful to calculate a retrospective stat like info ratio, which relies on the actual returns achieved. These actual returns will incorporate both the asset allocation decision and the stock picking (stock selection) decision. So I would say that using 0.6% in part (vi) would not get marks.
 
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