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5 Cards in this Set
- Front
- Back
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Factors that determine the IR |
1. Information coefficient (IC): signal quality; mgr skill; actual vs. expected active returns; 2x(% correct) - 1 2. Transfer coefficient (TC): actual vs. optimal active weights; correlation bw forecasted active returns and actuals weights adjusted for risk; TC = 1 for unconstrained portfolio; 3. Breadth (BR): number of bets per year |
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Grinold Rule |
SRActive^2 = SRBenchmark^2 + (TC x IRActive)^2 |
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Sharpe Ratio |
Unaffected by cash or leverage = (RP - RF) / sP = SRActive^2 = SRBenchmark^2 + (TC x IRActive)^2 |
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Optimal level of risk |
s* = TC x (IR/SRB) x sB |
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Closet index funds |
Claims to be actively managed but actually closely tracks the underlying benchmark Have similar SR as benchmark and very low IR and little active risk |
