Hwang, Soosung and Satchell, S. (Stephen) (2001) Tracking error: ex-ante versus ex-post measures. Working Paper. Warwick Business School, Financial Econometrics Research Centre, Coventry.

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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)
Subjects:	H Social Sciences > HB Economic Theory H Social Sciences > HD Industries. Land use. Labor > HD61 Risk Management
Divisions:	Faculty of Social Sciences > Warwick Business School > Financial Econometrics Research Centre Faculty of Social Sciences > Warwick Business School
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
Date:	2001
Number:	No.01-
Number of Pages:	13
Status:	Not Peer Reviewed
Access rights to Published version:	Open Access
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URI:	http://wrap.warwick.ac.uk/id/eprint/1813

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