What is the information ratio of a passive manager

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1. What is the information ratio of a passive manager?

2. What is the information ratio required to add a risk-adjusted return of 2.5 percent with a moderate risk aversion level of 0.10? What level of active risk would that require?

3. Starting with the universe of MMI stocks, we make the assumptions

= MMI portfolio

fQ  = 6%

= capitalization-weighted MMI portfolio

We calculate (as of January 1995) that

Portfolio

B

with Respect to B

1.000

with Respect to Q

0.965

s

15.50%

Q

1.004

1.000

15.82%

C

0.865

0.831

14.42%

where portfolio is the minimum-variance (fully invested) portfolio. For each portfolio (Q, B, and

C), calculate f, a, w, SR, and IR.

Reference no: EM13925531

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