publication . Preprint . 2010

Minimum Tracking Error Volatility

Luca RICCETTI;
Open Access
  • Published: 01 Apr 2010
Abstract
Investors assign part of their funds to asset managers that are given the task of beating a benchmark. The risk management department usually imposes a maximum value of the tracking error volatility (TEV) in order to keep the risk of the portfolio near to that of the selected benchmark. However, risk management does not establish a rule on TEV which enables us to understand whether the asset manager is really active or not and, in practice, asset managers sometimes follow passively the corresponding index. Moreover, the benchmark is sometimes difficult to be beaten when the risk managers only check that portfolio managers do not exceed a fixed level of relative ...
Subjects
free text keywords: Active Management, Benchmarking, Commissions, Portfolio Choice, Risk Management, Tracking Error, jel:C61, jel:G10, jel:G11, jel:G23
46 references, page 1 of 4

Admati, A. and P. Pfleiderer (1997), \Does it All Add Up? Benchmarks and the Compensation of Active Portfolio Managers", Journal of Business, 70, pp. 323{350. [OpenAIRE]

Bailey, J. (1990), \Some thoughts on performance-based fees", Financial Analysts Journal, 46, pp. 31{40.

Bajeux-Besnainou, I., R. Belhaj, D. Maillard and R. Portait (2007), \Portfolio optimization under tracking error and weights constraints", Working paper, The George Washington University.

Barro, D. and E. Canestrelli (2008), \Tracking error with minimum guarantee constraints", Working paper n. 172/2008, Department of Applied Mathematics, University of Venice. [OpenAIRE]

Basak, S., A. Shapiro and L. Tepla (2005), \Risk Management with Benchmarking", AFA 2003 Washington, DC Meetings; NYU Finance Working Paper; EFA 2002 Berlin; LBS Working Paper.

Bertrand, P. (2008), \Risk Attribution and Portfolio Optimizations Under Tracking-Error Constraints", Working paper, University of Aix-Marseille 2 - GREQAM.

Boyle, P. and W. Tian (2007), \Portfolio Management With Constraints", Mathematical Finance, 17(3), pp. 319{343.

Browne, S. (1999), \Beating a moving target: Optimal portfolio strategies for outperforming a stochastic benchmark", Finance and Stochastics, 3, pp. 275{294.

Bucciol, A. and R. Miniaci (2008), \Household Portfolios and Implicit Risk Aversion", Working paper. [OpenAIRE]

Busse, J., A. Goyal and S. Wahal (2006), \Performance Persistence in Institutional Investment Management", Working paper, EFA 2006 Zurich Meetings Paper.

Campbell, J., A. Lo and A. MacKinlay (1997), The Econometrics of Financial Markets, Princeton University Press.

Campbell, R., R. Huisman and K. Koedijk (2001), \Optimal portfolio selection in a Value-at-Risk framework", Journal of Banking & Finance, 25(9), pp. 1789{1804. [OpenAIRE]

Chevalier, J. and G. Ellison (1997), \Risk taking by mutual funds as a response to incentives", Journal of Political Economy, 105, pp. 1167{1200.

Chow, G. (1995), \Portfolio selection based on return, risk, and relative performance", Financial Analysts Journal, 51, pp. 54{60.

Clarke, R., H. de Silva and S. Thorley (2002), \Portfolio Constraints and the Fundamental Law of Active Management", Financial Analysts Journal, 58, pp. 48{66.

46 references, page 1 of 4
Powered by OpenAIRE Open Research Graph
Any information missing or wrong?Report an Issue