INFORMATION Ratio falls if we add cash and rises if leverage.
Can anyone provide explaination for above statement
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Answered multiple times earlier. Check.
You can remember it this way, information ratio represents the excess return over and above benchmark return (i.e. Rp – Rb) earned by active manager per unit of active risk taken by the active manager. So it shows how much extra did the active manager earned by taking a certain level of active risk. Hence, IR is affected by adding cash or leveraging…cuz active manager says that,”i will beat the benchmark” but if he invests in benchmark as well as active portfolio cuz wo darr raha hai..then His IR deserves to fall.