Tracking errorthe standard deviation of active returnsis a common measure of a portfolios ex ante risk. What

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Tracking error—the standard deviation of active returns—is a common measure of a portfolio’s ex ante risk. What are some limitations of using expected tracking error to measure the ex ante risk of an equity portfolio? When developing an equity factor risk model, why is it a good idea to include all of the return variables (the variables used to calculate stocks’ alphas) as factors in the risk model?

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The Theory And Practice Of Investment Management

ISBN: 9780470929902

2nd Edition

Authors: Frank J Fabozzi, Harry M Markowitz

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