Abstract
The information ratio (IR) and the batting average are two commonly quoted measures of investment success, but these measures have shortcomings: The IR contains no information about higher moments, and the batting average contains only directional information. This article demonstrates how the IR and batting average interact and how they can be usefully combined to allow investors to construct a comprehensive picture of the choices they face. The intriguing result is that large batting averages can result in low IRs and, conversely, impressive IRs can be obtained with low batting averages. Furthermore, in choosing between two managers with equivalent IRs, an investor who is averse to blowups should choose the manager with the lower batting average.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Similar Papers
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.