Schweser Volume 2 Exam 3 PM Ques # 17.2

Why does an information ratio of 0.33 here indicate that the enhanced indexing approach outperformed passive. What level of inofrmation ratio should this compare to?? As well, I used an ex post alpha measure with the Beta, and hence got that it underperfomed. Probably missed something really stupid, can anyone explain? Thanks

because the information ratio is positive indicating the prescense of postiive alpha.

wouldn’t the IR be positive in a case in which the excess return is any way positive, such as .1%, and when the tracking error is positive???

tracking error is always positive unless its 0. (since you square the terms). so IR is always positive if alpha is positive. if alpha is negative you would have been better off pursing a passive investment option.

so essentially it’s OK to take tons of risk (tracking error) aslong as you manage to outperform the benchmark…F Thx for the help striker.

based on the IR yup…that’s why sharpe and treynor should also be considered.

makes sense in that context. Thx again