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Tracking error: ex-ante versus ex-post measures
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Hwang, Soosung and Satchell, S. (Stephen) (2001) Tracking error: ex-ante versus ex-post measures. Working Paper. Coventry: Warwick Business School, Financial Econometrics Research Centre. Working papers (Warwick Business School. Financial Econometrics Research Centre) (No.01-).
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Official URL: http://www2.warwick.ac.uk/fac/soc/wbs/research/wfr...
Abstract
In this paper we show that ex-ante and ex-post tracking errors must necessarily differ, since portfolio weights are ex-post stochastic in nature. In particular, ex-post tracking error is always larger than ex-ante tracking error. Our results imply that fund managers always have a higher ex-post tracking error than their planned tracking error, and thus unless our results are considered, any performance fee based on ex-post tracking error is unfavourable to fund managers.
Item Type: | Working or Discussion Paper (Working Paper) | ||||
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Subjects: | H Social Sciences > HB Economic Theory H Social Sciences > HD Industries. Land use. Labor > HD61 Risk Management |
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Divisions: | Faculty of Social Sciences > Warwick Business School > Financial Econometrics Research Centre Faculty of Social Sciences > Warwick Business School |
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Library of Congress Subject Headings (LCSH): | Risk management, Portfolio management, Indexation (Economics), Stochastic analysis | ||||
Series Name: | Working papers (Warwick Business School. Financial Econometrics Research Centre) | ||||
Publisher: | Warwick Business School, Financial Econometrics Research Centre | ||||
Place of Publication: | Coventry | ||||
Official Date: | 2001 | ||||
Dates: |
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Number: | No.01- | ||||
Number of Pages: | 13 | ||||
Status: | Not Peer Reviewed | ||||
Access rights to Published version: | Open Access (Creative Commons) |
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