Increasing the Information Ratio Using Mixture Strategies

Abstract

The value of information may decrease rapidly or slowly with time. For example, knowledge of yesterday’s Fed decision may have no value today. On the other hand, a portfolio constructed last quarter may still be a profitable investment today. We may regard the history of a manager’s portfolio as a record of that manager’s strategy. This paper explores conditions under which lagged information from multiple strategies may be combined to produce information ratios higher than those achieved by using only the latest information from a single strategy.

Keywords: Investments, Portfolios, Information ratio