Tracking error: ex-ante versus ex-post measures
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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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|
|Number of Pages:||13|
|Status:||Not Peer Reviewed|
|Access rights to Published version:||Open Access|
Baierl, G. T. and P. Chen, 2000, “Choosing Managers and Funds,” Journal of Portfolio Management 26(2), 47-53.
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