RT Journal Article
SR Electronic
T1 The Information Ratio and Performance
JF The Journal of Portfolio Management
FD Institutional Investor Journals
SP 33
OP 39
DO 10.3905/jpm.1999.319779
VO 26
IS 1
A1 Francis Gupta
A1 Robertus Prajogi
A1 Eric Stubbs
YR 1999
UL https://pm-research.com/content/26/1/33.abstract
AB When it comes to selecting mangers, the predictors of alpha and performance persistence are of primary concern investors. The authors find that it is more difficult for domestic asset class mangers (small-cap is an exception) to outperform their respective benchmarks than it is for international asset class managers. Furthermore, the data reveal that alpha generation of top-quartile managers (within their peer groups) is positively related to tracking error. In general, they also have higher information ratios. Moreover, it is the information ratio not the alpha and/or tracking error that is the strongest predictor of persistence of manger performance. Finally, the authors illustrate how institutional investors can use the information between manger alpha and tracking error to perform strategic asset allocation, thereby allowing them to optimally allocate tracking error among mangers.