Quantitative Finance Stack Exchange is a question and answer site for finance professionals and academics. It only takes a minute to sign up.
Sign up to join this community
Suppose that we have an estimated Information Ratio $IR^*$ calculated from the relative returns between a portfolio and a benchmark.
I am looking for a way to quantify the uncertainty of this calculated value by either testing for significance of the value or by estimating a confidence interval.
I've read that the Information Ratio is very similar to a t-statistic. What further calculations are required to transform it to estimate significance?
The Information Ratio is indeed quite similar to a $t$-statistic; you could use that value to test whether your returns from active management are different from zero. In other words, the Information Ratio is a way of testing significance of the estimated mean of active returns.
If you want to quantify the uncertainty of the information ratio itself, I'm not familiar with anything beyond classic bootstrapping (hopefully someone more knowledgeable than me can provide a better answer there.)
