One property of a risky portfolio that combines an active portfolio of mispriced securities with a market portfolio is that, when optimized, its squared Sharpe measure increases by the square of the active portfolio's
A)Sharpe ratio.
B)information ratio.
C)alpha.
D)Treynor measure.

Question

Quizplus · Accepted Answer

The squared Sharpe measure of an optimized risky portfolio that combines an active portfolio of mispriced securities with a market portfolio increases by the square of the active portfolio's information ratio. This is because the information ratio measures the active return of the portfolio relative to the return of a benchmark portfolio, adjusted for the risk of active management, making it a key metric in evaluating the added value of active management strategies.

One Property of a Risky Portfolio That Combines an Active