An in-depth look at the information ratio

by Blatt, Sharon L.

The information ratio is a very controversial topic in the business world. Some portfolio managers put a lot of weight behind this risk-analysis measurement while others believe that this financial statistic can be easily manipulated and thus shouldn’t be trusted. In this paper, an attempt will be made to show both sides of this issue by defining the information ratio, applying this definition to real world situations, explaining some of the negative impacts on the information ratio, comparing this ratio to other statistical measures, and showing some ways to improve a portfolio manager’s information ratio. ii