Pg-278 VOL-4, CFA Material, Practice Problem -8, Equity Port

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1) Pg-278 VOL-4, CFA Material, Practice Problem -8, Equity Portfolio Mgmt.
Why can’t the active alpha doubles by doubling the active risk for a enhanced index portfolio benchmarked to the index?
2) Pg-279 VOL-4, CFA Material, Practice Problem -11E, Equity Portfolio Mgmt.
Why is that the answer to the problem, has explanation related to 11A?
Many Thanks for the help.
Can anyone help me with these, as I could not understand the reason given in the material.

stockjaguar

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发表于 2013-4-20 05:41 | 只看该作者

Active risk can increase the active return but would not double it…
As per Fundamental law of active managemenr IR = IC Sq Root IB……….letting the manager have more tracking error/active risk would allow him to make more number of independent decisions( opportunity sets) increasing IB (investor breadth) but to increase the information ratio, IC (information coefficient) also has to increase which generally difficult.

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JustasS

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发表于 2013-4-20 05:43 | 只看该作者

11E- Suggests that the long-short manager is generating 20% of his active return from non-US equities. Long-short manager’s style index or normal benchmark is cash with Russell 1000 overlay however investor’s benchmark is Russell 3000. As calculated in (A) the manager doesn’t have a large misfit risk suggesting majority of total risk is driven by active risk only. So manager seems to managing well his non-US part as well…

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johnnyBuz