Ch.10 · Risk Measures and Ratios · hard
What is 'Information Ratio' in mutual fund performance measurement?
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EXPLANATION
Information Ratio = (Fund Return - Benchmark Return) / Tracking Error. It measures how consistently a fund outperforms its benchmark relative to the variability of that outperformance (tracking error). A higher information ratio indicates the fund manager consistently adds alpha rather than occasionally generating large but unreliable outperformance.
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