Another look at the information ratio

Abstract

Chincarini and Kim (2006) argued that the information ratio can be interpreted as the square root of R2. In this paper, we further develop this argument by, first, making a distinction between the conditional and the unconditional information ratio and, then by clarifying the relationship between R2 and two versions of the information ratio. This paper also discusses the implications of our approach for interpreting the Fundamental Law of Active Management.