Measuring Investment Skill using the Effective Information Coefficient
$25
This paper proposes a new portfolio performance metric called the Effective Information Coefficient (EIC). The EIC offers a key advantage relative to traditional performance metrics such as the Information Ratio: rather than get one observation of portfolio return for each period of time to evaluate, we get one observation per time period for each asset in the investor’s permissible universe of investments.
Dan diBartolomeo, Northfield Information Services, Inc.
This paper proposes a new portfolio performance metric called the Effective Information Coefficient (EIC). The EIC offers a key advantage relative to traditional performance metrics such as the Information Ratio: rather than get one observation of portfolio return for each period of time to evaluate, we get one observation per time period for each asset in the investor’s permissible universe of investments. As such, sample sizes are much larger and we are able to obtain statistically significant performance evaluations much more quickly.
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