CFA Practice Question

There are 136 practice questions for this study session.

CFA Practice Question

The key to active management is ______.
A. breadth
B. information ratio
C. information coefficient
Explanation: The ability of the active manager to add value increases as the square of the IR increases.

Higher information ratio portfolios can be used to create higher Sharpe ratio portfolios. The optimal amount of active management that maximizes a portfolio’s Sharpe ratio is positively related to the assumed forecasting accuracy or ex ante information coefficient of the active strategy.

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