Before revision:  This paper proposes  the Generalized Information Ratio (GIR) to evaluate the performance of active portfolios under misspecified models . Motivated by the theoretical link between abnormal returns and residual covariance matrix, GIR is derived as alphas scaled by the inverse square root of the residual covariance matrix (GIR = \Sigma ^(-1/2) \alpha ). GIR translates residual covariance information into adjusted alphas and nests alphas and Information Ratio as special cases . Simulation results show that GIR is robust to  model misspecification and produces stable out-of-sample returns.
After revision:  This paper proposes the Generalized Information Ratio (GIR) to evaluate the performance of active portfolios under misspecified models . Motivated by the theoretical link between abnormal returns and residual covariance matrix, GIR is derived as alphas scaled by the inverse square root of the residual covariance matrix (GIR = \Sigma ^(-1/2) \alpha . GIR nests alphas and Information Ratio as special cases . Simulation results show that GIR is robust to model misspecification and produces stable out-of-sample returns.