Given reading 58 (residual risk and return: information ratio) and reading 59 (the fundamental law of active management) are both new, does anyone know of a good summary out there, s2000’s page doesn’t have this uploaded yet. Seems like there are some very fiddly formulas for these 2 readings.
reading 58 = 59 with a twist
IR = IC * BR ^.5
IC = 2(Nc/N) - 1
BR = forecasts per year
Value add = (IR * w) - (risk adversion * w^2)
w* = IR / 2 risk adversion
risk adversion * = IR^2 / 4 risk adversion
IR = IR1 + IR2 (addiditivity principal)
ICOM = IC * (2 / 1 + r)^1/2