Here is the question:
The question and options are:
As described in Exhibit 3, with respect to the Fundamental Law of Active Management, Dieter is least likely correct in his observation about:
A. breadth.
B. the information ratio.
C. the transfer coefficient.
The answer is (B). The explanation is “Although increasing the rebalancing frequency may increase the information ratio, it will do so only to the extent that sequential active management decisions remain independent.”. But why are returns of gold and the money market correlated? How are the bets not independent in this case?