does a high information neccessarily mean that the value added for an investor would be high?
i have this question in KS that compares three porfolios to determine the highest value added to some granny, and they have residual risk and residual return given.
so they calculate the information ratio and based on that they justify that the highest information ratio means highest value added.
VA = IR*residualrisk - lambda*residualrisksquared
so it would appear to me that information ratio alone cannot be the decision standard for the highest value added
For simplicity we can take residual return = 1000% and residual risk = 1000% and see that the VA is negative for decent lambda
is there anything that i am missing here?