Tracking Error: Ex Ante Versus Ex Post Measures
- 2.1k Downloads
Portfolio performance is usually evaluated against a prespecified benchmark portfolio. One most frequently used measure is tracking error (TE), sometimes defined as differences between portfolio returns and the benchmark portfolio returns. TE is simple and easy to calculate as well as a powerful tool in structuring and managing index funds. Two common sources of tracking errors come from the attempts to outperform the benchmark and the passive portfolio replication of the benchmark by a sampled portfolio.
KeywordsTrack Error Fund Manager Efficient Frontier Portfolio Management Portfolio Return
Unable to display preview. Download preview PDF.
- Clarke, R. G., Krase, S. and Statman, M. (1994) ‘Tracking Errors, Regret and Tactical Asset Allocation’, Journal of Portfolio Management, Spring, 16–24.Google Scholar
- Gardner, D. and Bowie, D., Brooks, M. and Cumberworth, M. (2000) ‘Predicted Tracking Errors Fact or Fantasy?’ Faculty and Institute of Actuaries, Investment Conference Paper, 25–27 June.Google Scholar
- Gupta, F., Prajogi, R. and Stubbs, E. (1999) ‘The Information Ratio and Performance’, Journal of Portfolio Management, Fall, 33–9.Google Scholar
- Lee, W. (1998) ‘Return and Risk Characteristics of Tactical Asset Allocation under Imperfect Information’, Journal of Portfolio Management, Fall, 61–70.Google Scholar
- Markowitz, H. M. (1959) Portfolio Selection, 1st edn, John Wiley, New York. Pope, P. and Yadav, P. K. (1994) ‘Discovering Error in Tracking Error’, Journal of Portfolio Management, Winter, 27–32.Google Scholar
- Roll, R., (1992) ‘A Mean/Variance Analysis of Tracking Error’, Journal of Portfolio Management, 13–22.Google Scholar
- Rudolf, M., Wolter, H. and Zimmermann, H. (1999) ‘A Linear Model for Tracking Error Minimization’, Journal of Banking and Finance, 23, 85–103.Google Scholar
- Sharpe, W. (1964) ‘Capital Asset Prices: A Theory of Capital Market Equilibrium under Conditions of Risk’, Journal of Finance, 19, 425–42.Google Scholar