Test your knowledge 36

Which of the following styles of equity investing leads to the highest Information Ratio A. Active Management B. Enhanced Indexing or semi-active management C. Indexing or Passive Management. Cheers :slight_smile:

A It also leads to the highest tracking error

In my opinion it should be A but I remember that CFA materials say that semi-active management gives higher Information ratio. So, Iā€™m going with B.


B. CFAI justifies this w/ Fundamental Law of Active Management, but their reasoning is far from a proof.

B since Active Mgt results in high active risk therefore lower IR. Just curious what would be the IR for PASSIVE mgt (IR = 0)?