12. Two active management strategies involving individual stock selection with a benchmark of
50 securities, and industrial sector selection with a benchmark of 12 sectors. The active
security returns uncorrelated, and forecasts are independent. The individual stock investor
has an information coefficient of 0.06, while the industrial sector investor has an information
coefficient of 0.19. The expected information ratio for each strategy, assuming each
investor’s forecasts can be implemented without constraints is closest to:
A. IR(security selection) = 0.40; IR(industrial sector) = 0.70.
B. IR(security selection) = 0.60; IR(industrial sector) = 0.80.
C. IR(security selection) = 0.80; IR(industrial sector) = 0.30.
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