article · The Journal of Portfolio Management · 2001
Tracking Error Allocation
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Abstract
This article presents a framework for allocating partial tracking errors to investment decisions in order to maximize the expected information ratio of an actively managed portfolio. The tracking error allocation framework is a three–step process: 1) identifying the independent investment decisions; 2) ranking the forecasting capabilities for the investment decisions; and 3) calculating the optimum partial tracking errors, given an overall tracking error limit. The key result is an understandable and transparent rule that says the target tracking error for each investment decision should be proportional to the corresponding expected information ratio. The authors illustrate the framework using examples that show some interesting practical consequences of an optimum tracking error allocation.
Cite this paper
Blitz, D., & Hottinga, J. (2001). Tracking Error Allocation. The Journal of Portfolio Management, 27(4), 19–25. https://doi.org/10.3905/jpm.2001.319809
Blitz, David, and Jouke Hottinga. “Tracking Error Allocation.” The Journal of Portfolio Management, vol. 27, no. 4, 2001, pp. 19–25, https://doi.org/10.3905/jpm.2001.319809.
Blitz, David, and Jouke Hottinga. 2001. “Tracking Error Allocation.” The Journal of Portfolio Management 27 (4): 19–25. https://doi.org/10.3905/jpm.2001.319809.
Blitz, D. and Hottinga, J. (2001) ‘Tracking Error Allocation’, The Journal of Portfolio Management, 27(4), pp. 19–25. Available at: https://doi.org/10.3905/jpm.2001.319809.
@article{blitz2001tracking,
title = {{Tracking Error Allocation}},
author = {Blitz, David and Hottinga, Jouke},
journal = {The Journal of Portfolio Management},
volume = {27},
number = {4},
pages = {19--25},
year = {2001},
doi = {10.3905/jpm.2001.319809}
}Made from the index record. Check names, capitalisation and page numbers against the paper. Need another style? AI for Research has over 10,000.