where λR = aversion to residual risk. It transforms residual variance into a loss in alpha.
The loss in alpha increases as:
The value added is also referred to as the certainty equivalent return.
I. information ratio.
II. residual risk.
III. level of residual risk aversion.
A. residual return.
B. information ratio.
C. value added.
A. value added.
B. aversion to residual risk.
C. loss in alpha.