What information ratio would you expect to find from


Haugen and Baker (1996) have proposed an APT model in which expected factor returns are simply based on past 12-month moving averages. Applying this idea to the BARRA U.S. Equity model from January 1974 through March 1996 leads to an information ratio of 1.79. Applying this idea only to the risk indices in the model (using consensus expected returns for industries) leads to an information ratio of 1.26. What information ratio would you expect to find from applying this model to industries only? If the full application exhibits an information coefficient of 0.05, what is the implied breadth of the strategy?

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Risk Management: What information ratio would you expect to find from
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