Information ratios

Apart from the ratio of active return to active risk , there is the one belonging to the Fundamental Law of Active Management. Do these 2 types of IR have any relationship with one another or is it just arbirtrary ?

no relationship.

I belive those two formulae are different verisons and on’t have any relationship between themselves

just running through a mental checklist, we have the: IR = active return / active risk IR = Info Coeff * Investor Breadth => this is the fundamental law of active mgmt formula is that all?

ilvino Wrote: ------------------------------------------------------- > just running through a mental checklist, we have > the: > > IR = active return / active risk > IR = Info Coeff * Investor Breadth => this is the > fundamental law of active mgmt formula > > is that all? you got that right vino. just to note investor breadth in the second formula is square rooted.

Right - I think IB = sqr root [# of decisions made]

ilvino Wrote: ------------------------------------------------------- > just running through a mental checklist, we have > the: > > IR = active return / active risk > IR = Info Coeff * Investor Breadth => this is the > fundamental law of active mgmt formula > > is that all? Isn’t it: IC * square root of investor breadth?

As i recall # of decisions made = IB … thus the square root. but i guess we both are on board here

Right, gotcha. Good to have it perfectly clear, though, you don’t wanna miss out on such a give-away.

yes mcpass u got that right

There was one question (I forget where) that asked for the information ratio, and it gave you enough information to figure it out BOTH ways (i.e. it provided IC, IB, excess returns, std dev of excess returns). How are you supposed to know which way they want it? (in this case they wanted it the old fashioned way). My hunch is that they’ll ask for the IR according to the Fundamental Law of Active Management if they want the IC*SqrRt(IB)