What the information ratio measures — excess return per unit of tracking error vs a benchmark

What the Sharpe ratio measures — excess return per unit of risk: (R - Rf) / σ

Sharpe ratio: Excess return per standard deviation of portfolio returns

What the Sharpe ratio's limitation is — it penalizes upside volatility as much as downside

Sharpe ratio doesn't differentiate between positive and negative volatility impacts on returns

What the efficient frontier is — the set of portfolios with maximum return for each risk level

The efficient frontier represents optimal portfolios with highest returns for given risk levels

What the Sortino ratio improves over Sharpe — only penalizes downside volatility

Sortino ratio focuses on downside deviation, unlike Sharpe ratio

What the efficient market hypothesis claims — prices reflect all available information

Efficient Market Hypothesis: Prices incorporate all publicly available information

What recency bias does — overweighting recent events in investment decisions

Recency bias leads investors to prioritize recent market trends over long-term historical data