publication . Preprint . 2010

Minimum Tracking Error Volatility

Open Access
  • Published: 01 Apr 2010
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 ...
free text keywords: Active Management, Benchmarking, Commissions, Portfolio Choice, Risk Management, Tracking Error, jel:C61, jel:G10, jel:G11, jel:G23
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